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Guest Blog: Million Dollar 403(b) Mistake 😱

October 26, 2021

Guest post by Dr. Barbara O’Neill, CFP®, AFC®

To be clear, I did not lose $1 million. I lost the opportunity to accumulate $1 million. Economists call foregone benefits that are lost when you do something else an opportunity cost and mine was a biggie: one. million. dollars!

I could have over $1 million more today if I chose a different path at age 25. This is my story with three basic financial education concepts, compound interestThe Rule of 72, and concurrent and sequential goal-setting, thrown in for good measure.

1) Compound Interest

Compound interest is interest earned on interest. A useful analogy is the game show Who Wants to be a Millionaire? Early questions are like compound interest in your 20s. Very slow. Savings amounts are low and you double small amounts ($100 to $200).

The final three game rounds are like being an investor for decades. Compound interest works much faster on larger balances and you double larger amounts (e.g., $250,000 to $500,000).

2) The Rule of 72

To quickly estimate how long it takes for a sum of money (any amount) to double, divide 72 by the expected return. For example, $2,000 invested in a stock mutual fund would grow to $4,000 in nine years at an 8% average annual return (72 ÷ 8).

Let’s look at how $2,000 could grow over an investor’s lifetime. If a $2,000 investment at age 22 earns an average 8% return, an investor would have the following amounts:

  • $4,000 at age 31 
  • $8,000 at age 40 
  • $16,000 at age 49 
  • $32,000 at age 58 
  • $64,000 at age 67 

Age 67 is currently the full retirement age for persons born in 1960 or later to receive an unreduced Social Security benefit. It is a target retirement age for many young adults.

If a $2,000 investment is made at age 31, instead of age 22, and earns an average 8% return, an investor would have the following amounts:

  • $4,000 at age 40 
  • $8,000 at age 49 
  • $16,000 at age 58 
  • $32,000 at age 67 

The late starter’s savings is half of the first investor’s amount. The second investor lost the last doubling period, where the real payoff occurs, by waiting an extra decade to start investing. Procrastination is very costly.

3) Concurrent and Sequential Goal-Setting

There are two ways to save for multiple financial goals:

  • Concurrently: Fund 2+ goals at the same time (i.e., Goal 1, Goal 2, and Goal 3).
  • Sequentially: Fund one goal at a time in a series of steps (i.e., Goal 1, then Goal 2, then Goal 3)

Each saving method has pros and cons. For example, you can intensely focus on one goal at a time with sequential goal-setting. It is also simpler to manage single-goal savings than savings for multiple goals.

But….and this is a BIG but…with sequential goal setting, compound interest is not retroactive. If it takes a decade to get around to retirement savings, compound interest is not earned during that time.

Remember, the earliest years of saving for retirement are the most powerful ones because you get another compound interest doubling period before age 67.

study of Millennial’s finances that I conducted with colleagues in 2018 found that many young adults today practice sequential goal-setting.

Phrases like “once I have…” and “as soon as…” were noted frequently, indicating hesitancy to fund certain goals (e.g., retirement savings) until achieving others (e.g., repaying student loans).

My Big Mistake

By now, you probably know where this story is heading….

I was a Sequential Saver. I’ve always saved a good chunk of my income, but retirement savings was on the back burner during my 20s and early 30s. I taught high school at ages 21-23, but never had a 403(b).

After grad school, I started working for Rutgers University at age 25 but did not begin 403(b) plan contributions until age 34, nine years later. Instead, I bought a flashy Pontiac Fiero with cash and saved for a house down payment.

Once enrolled in the 403(b), though, I hit the accelerator hard and “maxed out” for the remaining 32 years of my Rutgers career. I also took advantage of the 403(b) 15-year rule catch-up provision and the IRS catch-up provision starting at age 50.

In 2021, older workers age 50+ can contribute $6,500 beyond the $19,500 limit for all workers, for a total of $26,000.

And Then I Was Fifty-Something. Through aggressive saving, a moderate risk tolerance asset allocation, no panic selling (1987, 2000, and 2008), and over 20 years of compound interest, I became a “403(b) millionairess” in my late 50s as my account hit seven figures.

This is no small accomplishment and one I worked hard for.

I am not alone, either.

A recent analysis by Fidelity Investments found increasing numbers of retirement plan millionaires and larger average account balances. Most millionaires build wealth over time just like I did.

But here’s the thing….

I could have had $2 million when my account reached $1 million. Nine years of delayed saving cost me the opportunity to save $1 million because I had one less compound interest doubling period.

Another decade later, as compound interest continues to work its magic on my portfolio, the gap between what I saved and could have saved continues to grow.

But Wait…There’s More!

Some good news:  I also dollar-cost averaged deposits into equity mutual funds from every paycheck starting in my late 20s, for no particular financial goal. Perhaps retirement was in the back of my mind after all!

Twenty six deposits annually into three funds, including VTSAX, for 40 years.

Those three accounts, combined, also total over $1 million, plus I have a Roth IRA, a SEP from self-employment income, and a dozen inflation-hedging Series I bonds. My investments are actually pretty tax diversified (mixture of tax-deferred and taxable accounts).

All in all, I did well as an investor…but I could have done better!

Six Take-Aways

  1. Save Early: Workers have two key wealth-building resources: income-earning human capital and time. Start saving for retirement as soon as possible.
  2. Save Concurrently: Multiple goals can be funded together. Use the FINRA Retirement Calculator to estimate annual savings for retirement and the SEC Savings Goal Calculator to determine savings for other goals.
  3. Project Ahead: Knowing what you could accumulate with regular savings is motivational. Use the Bankrate 403(b) Savings Calculator to see what is possible.
  4. Minimize Expenses: The lower an investment’s expense ratio, the better. Even small differences in fees add up over time. Select low-cost index funds and/or exchange-traded funds (ETFs).
  5. Pivot and “Super-Save”: Not everyone starts a 403(b) on the first day of their first job. I didn’t. It is still possible to save impressive sums with large contributions later. Multiple streams of retirement savings also help.
  6. Support 403(b) Plan Auto-Enrollment: Most 403(b) plan participants have to “opt in” with salary reduction paperwork. Regulations permit automatic enrollment with a default contribution percentage and “opt out” provision but this is rare in educational workplaces.Educators can lobby for auto-enrollment like they do for low expense 403(b)s. Employers should provide education so employees clearly understand defaults are a starting point and not a recommendation. I wish automatic enrollment was around when I was 25.

The Bottom Line

Start saving for retirement as soon as you land your first full-time job, if not sooner. If you are older and haven’t started saving yet, start TODAY. Contact your employer for enrollment information and visit https://403bwise.org/ for fact sheets and videos about 403(b) plans. Your future self will thank you.


This post provides general personal finance information and does not address all the variables that apply to an individual’s unique situation. It should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.


Dr. O'Neill is the owner/CEO of Money Talk: Financial Planning Seminars and Publications where she writes, speaks, and reviews content about personal finance. She is a Distinguished Professor Emeritus at Rutgers University and a long-time 403(b) plan participant.

Related Podcast:

Fin Lit Royalty Dr. Barbara O'Neill has made huge contributions to the financial literacy movement. Listen Now »