Take the slightest care with your spending and it could accumulate to more than most workers have in their 401(k) plans. Measured against the American Dream of homeownership, it might accumulate to more than most Americans pay for their home.
All you need to do is save the money you didn’t spend rather than spend it on something else.
Yes, I was surprised too. But that’s what the numbers say. Here’s how I learned this.
A few days ago, I was doing errands at mid-day. I stopped for a quick lunch at a newly opened smoothie place. I ordered a smoothy bowl with chunks of fresh fruit. I clicked my phone to Apple Pay, almost without thinking. Then I took the bowl to a comfortable, shaded place outside.
I had just spent $14.94!
The total included the 15 percent tip I had added. The bill seemed a bit much. I could have made one at home for far less. And I would have had a wonderful view instead of gazing at a parking lot. The weekly closings and bankruptcies of fast-food outlets indicate that millions of Americans have similar thoughts. They’re not spending the money they once did.
Is it enough to make a long term difference?
The answer: A resounding “YES.”
The table below shows the amount you’d accumulate over 20 to 40 years, assuming annualized returns of 10 and 8 percent. Note that the lowest number is $178,184.
Your Almighty Consumer Dollars at Work |
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| This table shows how much a monthly contribution of $300 would accumulate to in 401(k) plan assuming asset allocations of 60 and 100 percent equities with a 10 percent return assumed for all equities and an 8 percent return assumed for a traditional 60/40 balanced mix of equities/bonds. | ||
| Years | 10% Return | 8% Return |
| 40 | $1,913,334 | $1,054,584 |
| 35 | $1,148,783 | $ 693,052 |
| 30 | $ 684,098 | $ 450,389 |
| 25 | $ 401,667 | $ 287,510 |
| 20 | $ 230,009 | $ 178,184 |
| Source: Author calculations done with this calculator: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator | ||
The annual Vanguard report for 2024, “How America Saves,” shows that only 23 percent of 401(k) accounts had balances greater than $150,000. That’s less than the smallest number in the table. The smallest number is also double the median account balance of $87,571 for workers age 55-64 or the $88,488 median balance for workers at least 65 years old.
Vanguard estimates that the average account balance, which is larger than the median balance, is typical of workers in the 75th percentile of account balances. Those were $244,750 for workers 55-64 and $272,588 for workers at least 65 years old.
The most recent National Association of Realtors figures show that the median home value is over $1 million in only 0.5 percent of all counties. In the other direction, 85 percent of all median home values in each county nationwide were $350,000 or below.
The median home value in Travis County, Texas – the most expensive of all Texas counties – was $564,442. Most Texas counties have median home values below $350,000. But a significant number have median values in the range of $350,000 to $550,000.
But what about inflation?
Glad you asked. Big future numbers always shrink a lot when adjusted for how much inflation reduces purchasing power. But adjusting is not devastating. Here are two examples. If inflation averaged 3 percent a year (its approximate long-term average), that 40-year accumulation at 10 percent would be 30.7 percent of its nominal value or $857,394. The 20-year accumulation at 8 percent would be 55.4 percent of its nominal value or $98,714.
Now let’s consider other factors that could improve these results:
— If Congress was functional and did its job, inflation might be 2 percent, or less. But since both parties have proven, for decades, that they would rather spend and borrow, the purchasing power of our savings is lower. At 2 percent inflation, money would retain 45.9 percent of its purchasing power in 40 years, not 30.7. That’s a big difference.
— Since contributions to a 401(k) plan are tax-deductible, you can contribute more than the $300 saved each month without losing current spending power. So your accumulation would be greater. Even if you were only in the 12 percent tax bracket, your accumulation would be 13.6 percent greater.
— The 50 percent employer match for 401(k) contributions some employers provide also changes things. If you work in a company that does that, your accumulation will be 50 percent larger.
To be sure, many workers would have great difficulty finding stray spending that amounts to $10 a day, or $300 a month. But it’s also difficult to deny that many of us are surrounded by the proverbial “low-hanging fruit” when it comes to spending.
Related columns:
Scott Burns, “Let’s Call It – Reacherism!” 4/7/2024: https://scottburns.com/lets-call-it-reacherism/
Scott Burns, “The Consumer Value of Transportation Efficiency,” 5/18/2025: https://scottburns.com/the-consumer-value-of-transportation-efficiency/
Scott Burns, “The Supreme Grand Poohbah Saves Social Security,” 5/4/2025: https://scottburns.com/the-supreme-grand-poohbah-saves-social-security/
Sources and References:
Investor.gov calculator tool: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
Vanguard’s “How America Saves” Report 2024: https://institutional.vanguard.com/insights-and-research/report/how-america-saves.html?cmpgn=IIG:TL:HAS:HAS24:SRCH:PS:XX:TL:GG:Unknown:Exact:TLEAD:20230615:NB:NONE:NONE:KW:AmericaSaves&gclsrc=aw.ds&gad_source=1&gad_campaignid=17413932843&gbraid=0AAAAADyd_RUVAgSKP-NixyiiwxRmyqNsM&gclid=Cj0KCQjwlrvBBhDnARIsAHEQgOQa32hSePxxLshilIRnoQ_fGE3JrDhm173WRqrolCLK43rZxxcyqUUaAhlAEALw_wcB
National Association of Realtors, median home prices and mortgage payments by county: https://www.nar.realtor/research-and-statistics/housing-statistics/county-median-home-prices-and-monthly-mortgage-payment
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Scott Burns, The Magic Light of Texas Hill Country, 6/2025
(c) Scott Burns, 2025