Singletary: The 401(k) millionaire next door

With the ability to save so much money in a 401(k) every year, you can let compounding interest do its wonderful thing.

We know Social Security isn’t so secure with its projected funding shortfall coming soon. And company pensions are becoming a rare benefit. So the burden of your retirement financial stability rests largely with you.

The proof of the success of the 401(k) or TSP has been the ability of an increasing number of participants to reach a high milestone.

The TSP had 16,475 millionaires as of August of this year. There were 2,675 millionaires in the same month in 2014. TSP millionaires are a small group relative to the 5.1 million participants, but it’s clearly growing.

As of year-end 2014, Fidelity Investments said that 72,000 of its 401(k) accounts held more than $1 million. This is up from 59,000 in 2013 and 21,000 in 2009.

In a recent column, I asked these millionaires to share their stories. This is what they told me: They didn’t come from money. They became millionaires by patiently putting money into their company plan every paycheck. They took advantage of company matches. When they got raises, they increased their contributions. They didn’t cash out of their retirement account when they moved to another job. They didn’t panic when the stock market experienced major dips.

Meanwhile, they held on to their cars for years. Their mortgages didn’t eat up a super-large percentage of their net income. They shunned debt. They lived well but still below their means.

And although a good percentage of those who reached out to me earned in the $100,000 range, some didn’t.

Linda has close to $1.5 million and makes less than $60,000 a year. She’s been at her job for 42 years and has a very generous employer match. “I began with 5 percent, and as I was there longer, every year I got a raise, and I would take 1 percent of the raise and put it in retirement. Since the rest of the increase went into my pocket, I never missed it.”

“I always withheld the maximum and got the maximum match from my employer,” wrote one 401(k) millionaire from Maryland. “I invested in index and mutual funds. I continued to invest through all the ups and downs of the market, and I have been astounded at how much I have saved.”

M.L, who is a 55-year-old TSP millionaire, started early and was an aggressive investor, putting her contributions in the Common Stock Index Investment Fund or C Fund.

“Since I was young and figured I had 30-plus years to go, I put all my contributions in the C fund,” she wrote to me. “Every January when we received a COLA [cost of living increase], I increased my percentage by 1 percent.”

One couple who both work for the federal government have combined savings of close to $2 million. “In the beginning of our careers, we didn’t contribute as much as we could have, but we soon started to devote raises to max out our contributions.”

D.P. from Texas hit the millionaire mark a month ago. She’s 57 and has been at her job for 35 years. Every few years, she also would increase the percentage she contributed. “I have been at 11 percent for quite a few years now, with a company match of 9 percent. I live a frugal, modest lifestyle, and my retirement accounts prove that compounded interest can work for anyone.”

Does the tax code need an overhaul? Of course it does. But Congress shouldn’t look to balance tax cuts to businesses by raiding 401(k)s and similar employer-sponsored retirement plans.

The people who have become millionaires serve as an inspiration of what can happen when you use this retirement vehicle the way it was intended.

It makes no sense to criticize people for not saving enough for retirement and then propose a plan that could greatly reduce the very incentive that has encouraged them to take care of themselves.