🏃‍♀️ For the hard-working and motivated, taking a break isn’t easy.

Many Americans struggle with taking time off, whether because of “hustle culture,” all the distractions out there, or something else.

Over half (54%) of American workers say they feel guilty about taking a vacation. Roughly 55% of paid vacation days went unused in the U.S. last year alone. Even while away, about 70% of Americans admit to checking in on work.

As we enter peak vacation season, we hope you find a little time to disconnect and refresh 🧘

Below, we'll discuss the stories and benefits of the old-fashioned 401(k).

All this, and more, in just 5 minutes to read.

— Matthew

QUOTE OF THE DAY

"Doing well with money has a little to do with how smart you are and a lot to do with how you behave.

Compounding works best when you can give a plan years or decades to grow. This is true not only for saving but for careers and relationships."

— Morgan Housel

BROUGHT TO YOU BY

Whether you're seeking advice on retirement planning, optimizing your 401k, navigating inheritances, or any other financial matter, Money Pickle has your back.

Their platform offers free video chats with experienced financial advisors, providing you with a unique opportunity to gain a second opinion on your financial situation.

Share detailed notes about your situation and book a convenient time to connect with Money Pickle's experts today.

Don't miss out on this chance to protect and optimize your wealth. 

WHAT ELSE WE’RE INTO

📺 WATCH: Why core inflation is rising in the U.K. but falling elsewhere

👂 LISTEN: Clay Finck on how to cope with market cycles

📖 READ: How to succeed in business like Taylor Swift

KNOWLEDGE TEST

Scoring a perfect 5/5 on We Study Market's Weekly News Quiz reportedly feels like walking into a comfortably air-conditioned cafe on a hot summer day.

It’s that satisfying. Ace the quiz.

THE POWER OF THE OLD-FASHIONED 401(k)

A really long hill

One of the most powerful stories in Morgan Housel’s bestseller The Psychology of Money highlights an unlikely millionaire.

In the book’s introduction, Housel introduces readers to Ronald Read, a gas station attendant and janitor in Vermont who becomes an investor and philanthropist.

When he died at 92, Read was worth more than $8 million, most of which was accumulated through the power of compound interest. He reached the fortune on a modest salary by living below his means, saving where he could, and investing the difference between his income and expenses in quality stocks that he held through downturns.

The lifelong resident of Brattleboro, Vermont, left $6 million of his fortune to his local library and hospital.

“Read owned at least 95 stocks at the time of his death, many of which he had held for years, if not decades,” The Wall Street Journal reported in 2015.

Read’s patience allowed the power of compounding to work to his advantage. He started early and kept going through recessions, crises, and numerous bear markets. His gains grew on top of earlier gains over decades.

It’s unclear how much of Read’s $8 million was inside of his 401(k), the company-sponsored retirement account to which employees can contribute income. But his story nonetheless illustrates the power of long-term compounding, just as the 401(k) helps millions of Americans invest for the long haul.

Said Warren Buffett: “Life is like a snowball. All you need is wet snow and a really long hill.”

You don’t need the next shiny object

In early 2022, before the bear market, a record number of Americans became millionaires thanks to the boring, old-fashioned 401(k) or IRA (individual retirement account).

They didn’t necessarily buy Apple or Microsoft 20 years ago or start buying bitcoins when they were worth under $500. Many never earned six-figure salaries.

Instead, they dollar-cost-averaged into their retirement accounts, gradually, paycheck by paycheck. Many have been investing for over three decades, capitalizing on the power of time in compounding wealth.

Investing in retirement accounts isn’t necessarily for every investor, but it has worked wonders for millions of Americans leading busy lives. Many newly-minted 401(k) millionaires didn’t speculate on individual stocks, either, instead counting on major market averages to advance their investments.

It’s not just for people over 40. Younger Gen Z workers, individuals born between 1997 and 2012, increased their retirement contributions during the pandemic by 53%.

Ted Benna: ‘Father of the 401(k)’

The modern 401(k) originated in earnest in 1978 in a provision in The Revenue Act of 1978.

But Ted Benna, known as the “Father of the 401(k),” popularized the tool, advocating for companies to adopt plans in accordance with the IRS’ new act. He instructed Treasury officials on how the 401(k) should be implemented and regulated, steering the success of the once-nascent retirement tool.

“I knew it was going to be big, but I was certainly not anticipating that it would be the primary way people would be accumulating money for retirement 30-plus years later,” Benna said recently.

By 1996, assets in 401(k) plans hit $1 trillion, with more than 30 million active participants. Today, it remains the primary way many Americans have exposure to the stock market.

The 401(k) replaces the pension

By now, the American pension is nearly obsolete, replaced almost entirely by the 401(k).

Benna has noted that less than half of American workers were covered by pensions even at the peak. They were usually offered only by big companies, such as Bethlehem Steel or MetLife, not mom-and-pop stores.

“When I met with a room full of senior executives about the 401(k), I was nicely told that employees didn’t need to save for retirement on their own,” Benna recalled. “They said, ‘Bethlehem Steel would take care of them.’”

Decades ago, people relied on social security, personal savings, and moving in with their children as primary ways to save for retirement. Plus, average life expectancy was much lower, making retirement a 15-year event on average.

Starting early

If a 25-year-old investor invests $4,600 annually for 40 years in a 401(k) at a 7% annual return, that investor would have approximately $1.02 million at age 65.

In comparison, if a 35-year-old investor invests $10,000 annually for 30 years in a 401(k) at a 7% annual return, that investor would have approximately $1.02 million at age 65.

The future of the 401(k)

In 2025, companies establishing new 401(k) plans will be able to automatically enroll employees with a contribution rate of 3%. Workers can opt-out.

In 2024, retirement plans will allow employees two ways to build a savings cushion. Under one provision, they could withdraw up to $1,000 for an emergency expense. This withdrawal is not subject to the usual 10% early withdrawal penalty for people under 59½ years old.

Dive deeper

Here’s Benna on the 401(k)’s origins and its best use cases.

See you next time!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

Keep an eye on your inbox for our newsletters on weekdays around 6pm EST and on weekends. If you have any feedback for us, simply respond to this email.

You can also leave your comments/suggestions/feedback anonymously here.

How would you rate today's newsletter?

⭐️⭐️⭐️⭐️⭐️
⭐️⭐️⭐️
⭐️