When Will You Become a 401 (k) Millionaire?

I was playing around with Excel last week (yes, I know, I make my own weird fun*) and I came up with something that I think is very cool and unique.

I was curious when I’d become a retirement account millionaire. Typically, the media refers to them as 401k millionaires, but I’ve been self-employed for a long time, which means no 401k for me. Instead, I have a SEP-IRA. I could have a solo 401 (k), but the SEP-IRA and the Roth IRA are enough for me. For the purpose of this article, it doesn’t matter.

I use Google Sheets to track my brokerage accounts. It’s great because I keep the number of shares accurate, and it updates all my holdings in real time. I’ve become pretty good with spreadsheets, so I can massage quite a bit of data. It’s more than anyone needs, and truth be told, this much information may make me prone to trading more than I should. Nonetheless, I mostly have index ETFs and only a few satellite stocks.

One of the benefits of Google Sheets is that every day, I have an update on how much money I have invested. (You can get this information from other apps if spreadsheets are simply not your thing.) I spend about 15 seconds a day copying the date and the total investment. I have a couple of other things that are generated from that, like year-to-date performance.

My wife recently became a retirement account millionaire. That’s one of the reasons it was on my mind. My retirement accounts haven’t done as well since I’ve earned less money and taken on more of the domestic responsibilities. I have been able to max out my Roth IRA and put a little money into a SEP-IRA, but it isn’t the kind of money I was able to put in a 401k plan as a software engineer.

I’ve been able to estimate how money this account will have at various points in my life by using the rule of 72. That rule helps you figure out when your money will double by dividing the projected growth rate by 72. So if we assume 7% growth, it will take about 10 years to double. Technically, it should be the rule of 69 based on the natural log, but the ability to divide 72 easily by many potential growth percentages has proven to be more useful.

As I was figuring out when my money would double, I realized that at some point it would jump over a million. After all, once you have $600,000, the next doubling is $1.2M. You can use the rule of 72 to estimate it, but I figured there must be an exact date (even if all of it is based on an imperfect guess of an estimated rate of return).

Back in the 12th grade or as a freshman in college, I could have figured out the math. However, with the power of ChatGPT, I simply asked it for a spreadsheet formula to determine the day. It explained in detail how it came to the solution. I’ll spare you the explanation, but the formula was, “=Log(1000000/A2)/Log(1+B2)”. In this case, the $1,000,000 should be pretty obvious. The number in A2 is the current total in your retirement accounts, and B2 is the estimated compound interest rate. The results give you the number of years to a large number of decimal places of how long it should take. Multiply that number by 365 and you get the number of days. Add those days to today’s date and you’ve got your magic date.

The beauty of having the retirement data copied each day is that I could go back and extend the formula to every day in the past 8 years when I started. This means that I can see how my retirement millionaire date has changed over the years. I’ve actually been able to reduce my date by 6 years because I’ve been able to make more than my estimated 7% annual return.

To take it all one step further, I used ChatGPT to figure out what my compounded rate of return has been over those 8 years. If we assume that A1 is the starting value, A2 is the ending value, A3 is the starting date, and A4 is today’s date, then the excel formula is =((A2/A1)^(1/((A4 – A3)/365))-1). I didn’t expect that to be as complex as it is, but hopefully you can follow it (or use ChatGPT for your own situation. This gave me a compound rate of return of 13.09%. That is high because I’ve made new contributions over that time, and the markets have done quite well. It’s good enough as new contributions are now minimal compared to the investment gains.

Is that 13% number a good estimate going forward to use for my retirement millionaire date? Maybe! It is an average of 8.5 years of investing. You can argue that the US has done quite well. However, I also have 20% of my money in international stocks, and another 10-15% has historically been in bonds. That means about 1/3 of the money has lagged behind the major US indexes in that time.

Final Thoughts

This isn’t limited to figuring out the date of when you become a 401 (k) millionaire. I just plugged the $1,000,000 number in because it was convenient for what I wanted to know. I could use the same formulas for monthly net worth and a target number like $3,000,000 or $5,000,000. I’m nearly 50, so these target numbers make sense for me, but use what works for you. The math works the same if you are a 16-year-old fry cook at McDonald’s or Warren Buffett.

The biggest question mark in all of this is estimating the rate of return. At the end of the day, it’s personal finance, so use whatever number you want. A lot of people generally use 7%. If you want to take out inflation, you might want to use something like 3.5% or 4% to subtract inflation from the top. That’s particularly helpful if you are at the start of your financial journey and are projecting out 20-25 years to hit your target.

Thanks for following this for so long. The next article will certainly be less mathy and spreadsheety. Have a great holiday if you live in the US.

* Bonus points if you recognized this from Buffy the Vampire Slayer.