Why The Money Guy Show LOVES 401(k)s

April 28, 2023

Let’s talk about the basics of a 401(k) and the reasons why we love them. In this highlight, we discuss some surprising 401(k) stats and how to make sure you are taking advantage of this account.


For more information, check out our show called, “Average 401(k) Balance by Age (2023 Edition).


Let’s talk about some of the basics we’ve covered, like The blocking and tackling. Let’s talk about why we love them, because we sit in this unique position where we get to work with successful people all over the country and see what they do, how they did it, and how they built their wealth. Here’s the simple fact of the matter: one of the reasons we love 401K plans is because millionaires use them. Ramsey Solutions did a study and found that 80% of millionaires admitted that one of the ways they got there was by investing in their company’s 401K and taking advantage of their employer-sponsored retirement plan. So, if a bunch of successful people are doing this and they’re attributing some of their success to that, maybe it’s something we should all clue into. Take that, 401k haters!

Seriously, there’s so much drama out there from people who are saying all this madness, typically to try to sell you some type of life insurance product. But 401ks are very effective. How could they not be with all the free money you’re given from your employer? As research shows, 80% of millionaires invested in their company’s 401K. We found this in our own research as well. Most millionaires who we investigated in our wealth survey (67%) said, “Hey, you know what? The way I did this, the way that I became a millionaire, the way I built my wealth, it was through simple saving and investing over time. It wasn’t that I was born with some crazy talent, it wasn’t that I’m some unique executive, or I started some business. It was simply that I was consistent in my savings.” Well, if you’re someone who can be consistent in your savings and exhibit that behavior, one of the very best tools at your disposal to be able to do that is an employer-sponsored retirement plan, like a 401k plan.

I want to talk about something cool. Millionaires likely cross into seven-figure status with this account, but for all of you out there trying to figure out how to minimize your taxes, because you will reach a level of success where you’re like, “Man, how do I quit paying the government so much money?” I love where I live, and I love these things, but even people who think that they’re all about different situations still don’t like paying taxes. I have not found anybody who says when they walk in because I did tax preparation for 16 years. It didn’t matter what their worldview was, how they voted, or however else they came to us, they would be like, “Hey, how can I minimize my taxes?” and I get it. We see it with Warren Buffett, and we see it with all the people out there who say that their secretaries are paying more. They’re trying to minimize taxes as much as possible, and this is a great way to legally hide money from the government.

I was on a call last week with a gentleman who was selling his business and coming into a very large windfall. I was just asking about the structure, and I was like, “So, what do you have in retirement assets?” He’s like, “Oh, I never did that.” I was like, “Wait a minute. You had this level of income coming in, and you never offered a 401k or retirement plan to your employees?” It made me sad because I was like, “Man, if you could have found us seven years earlier, for the last seven years, I could have literally saved you six figures, multiple six figures every year if you’d have just structured your business with this.”

Don’t overlook this if you have if you have success in your cornering, you’re starting to get into higher-income situations. Real estate’s a great thing, but also don’t overlook what an employer plan can do for your employees, as well as for your tax bill. What I love is that 80 percent of plans let you do it the Burger King way: you get to have it your way. You get to decide, “Do I want to lower my taxes now or don’t want to lower my taxes later? Do I want to do pre-tax contributions, or do I want to do Roth contributions?” You can literally build and customize your plan in such a way that is most beneficial for you. 401(k)s are an amazing way to do that.

The third reason why we love 401(k)s is that it creates an ABB opportunity. If you know what that means, it is an always be buying opportunity. It’s a Brian Preston specialty because when you ask him what he’s investing, he says, “Always. I’m always buying. I’m always putting my dollars to work.” Well, I had that question this weekend. I was out at dinner, and somebody said, “Hey, it’s kind of scary right now. What’s going on?” I was like, “I’ll tell you what I’m doing. I just buy every month.” Yes, I keep cash and other things, you know, for if it gets really ugly, but I’m like, it doesn’t matter if the market is good or bad. A good retirement plan like a 401(k) creates an always be buying opportunity, as we like to say in the halls of Abound Wealth in the Money Guy show. If you have pay, you’re going to want to do the cat. That’s what we say around here all the time, and we love it.

Okay, so check this out. We did a case study to show you just how powerful always buying can be. Look at this. The market was flat for nearly six years from October of 2007 all the way out into 2012. Right, the S&P 500 was at 1565, and then you go five and a half years into the future, and it was at 1563. But what if you were an ABBer? You were always buying through that and you said, “You know what? I’m going to do $500 every single month through essentially this flat period, this period where the market has not moved at all.” The $33,000 total that you invested would be worth $46,327 by April of 2013. Remember, the market was supposedly flat for five and a half years. It went from 1563 to 1565 to 1563 before you give the rest of the story.

Sure, I think it’s important to share with everyone. It’s not just 401(k)s, but it’s definitely something that I love, that 401(k)s were kind of creating that forced behavior of buying every month or every pay period. I want you guys to realize that when you’re in periods just like right now that’s volatile, a dollar-cost averaging, meaning a consistent, automatic, keep-it-easy, set-it-forget-it type strategy, is going to serve you well. Because just like this showed, 1565, fast forward almost six years, 1563. You shouldn’t have made money in this period of time, but because you were consistent with your behavior, you made it easy, you made it automatic, for the people you’re going to see, you actually had a great rate of return.

That $33,000 turning into forty-six thousand dollars is an annualized rate of return of 11.9 percent in a five-and-a-half-year period where the market did not move. Technically, you would have made almost 12 percent per year, but that’s only part of the story. Because when we’re investing in our 401ks, we’re taking the long view. We’re looking out over the long term. Here’s the rest of the story: Even if you would have stopped right there, and you stopped in April of 2013, and you just let that $46,000 continue to grow, you didn’t keep doing the $500 a month, you just cut it off right there. We know that without consuming another dollar, that forty-six thousand dollars over the next 10 years grew to one hundred and forty-six thousand dollars because of that hard work that you did while the market was flat, while the market was volatile, while the market was scary. That’s an annualized rate of return of 12.2 percent. Imagine what would have happened if you would have really always been buying. Yeah, what if you hadn’t stopped in that five-and-a-half-year period? Well, now we’re talking about hundreds of thousands of dollars if not seven-figure lands. The financial mutant to me is like, man, that’s exciting. That’s how wealth is built. You don’t stop. But I love when we show these things because they show how valuable your army of dollars is. They grow upon themselves naturally, but if you did just keep the consistent behavior, that is how you build independence sooner, and you get to own your time and do what you want when you want and how you want on your terms.

Want to know what to do with your next dollar, you need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.



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