My 401(k) - The Linchpin Of My Retirement Investing Plan

by: Retired Investor

If you follow some simple rules, you can amass a 7-figure 401(k).

Having a high equity ratio is not required. Mine is below 40% now versus 60%+ when I was younger.

I used the three 401(k) options within my investing strategy.

I am planning possible allocation changes after I retire this summer.

With the death of corporate pension plans, future retirees will be heavily dependent on the size of their 401(k) - even more than their Social Security check. For those whose financial requirements are different from mine, it could take more effort to achieve a $1,000,000+ 401(k) by retirement. My 401(k) represents half of my net worth - thus the linchpin in my retirement planning.

How I amassed a 7-figure 401(k)

Looking back, I think these strategies resulted in my reaching the level I have in my 401(k) account. The first two are critical as starting early makes a big difference when you get to 65. The others are important points but not always under your control.

  • I always put in enough to get the full company match (50% on 6% prior to 2007; 100% on 6% since).
  • Since turning 50, I put in the maximum allowed by law, including the catch-up levels permitted.
  • I never was unemployed since graduating college
  • I never borrowed from or withdrew funds from my 401(k)
  • I have no children, parents, or siblings to support
  • I graduated college with no debts

Why I have a low equity ratio

Here is where I have my funds invested now.

Investment Allocation



Fund Return





$ 84,620




US Large Cap

$ 137,972




US Mid Cap

$ 128,129




US Small Cap

$ 194,270





$ 79,100




Stable Value

$ 963,195






As you can see, my equity ratio is only 39%. There several reason for this:

  • At the end of 2008, the company announced a new lineup of funds starting in early 2009 and they would move my money to the new funds. Since they did not say what those funds were, I moved almost all my funds to the one fund not changing; the Stable Value Fund. While this allowed me to avoid the late 2008 crash, I never got around to moving most of it back to the new equity options.
  • The Stable Value Fund at the time was earning 7% with no risk that the share price would ever go down. These are my SWAN (Sleep Well At Night) assets!
  • I have slanted my equities to the higher risk areas (small cap, international) so a low equity ratio partially offsets that risk.

I have averaged 7.8% return over the last 31 years I have tracked this, slightly better than my 60/40 benchmark.

How the three 401(k) options fit into my investing strategy

For most of my career, the company offered only Pre-Tax and After-tax options. Recently, they added a Roth option. As of the end of March, this is where I had my funds:

Account Type






Roth Option


Pre-tax option

This option allowed me to save on Federal and State income taxes when a contribution was made. Prior to getting access to the Roth option around 2012, this was the main option I used. This year I am using this option again to prevent higher Medicare premiums in 2021 as Pre-Tax contributions shield income from the MAGI that sets your Part B & D premiums. This is also a good option if you think your retired marginal tax rate will be lower than when contributing.

After-tax option

The After-Tax balance is from the company matching funds and 12% of my salary. The IRS caps how much you can contribute into the Pre-Tax & Roth options, but I can contribute up to 12% of my salary in addition to that cap to the After-Tax option. While this means any gains are taxed at ordinary income rates, that doesn't happen until the RMDs are required. Delaying taxes was the strategy for using After-Tax - with RMDs starting in 2025 we will see how that works out. Despite the name, all company matching funds and growth are Pre-Tax as far as the IRS is concerned. I estimate about 40% of my After-Tax funds are taxable. That is important to know if you decide to roll these funds into an IRA.

Roth option

A Roth 401(k) is the same as a Roth IRA in terms of its rules. Here again, the IRS caps how much you can contribute (Pre-Tax & Roth contributions combined have to be below the one limit). I started using this option once available to reduce my taxable 401(k) RMD, which is estimated to be near $50,000 (a good problem to have). My main strategy for using the Roth option is avoiding higher Medicare premiums once RMDs start. The Roth option is probably best for younger employees who income (and tax rates) will increase with age. Warning: A Roth 401(k) requires RMDs but that can be avoided by moving those funds to a Roth IRA.

Possible changes within my 401(k) plan after I retire

Retiring mid-year requires me to make a full year's worth of contributions before my retirement date (company rule). Having funds outside my retirement accounts allows me to pull this off! After retirement, the only major plan limit is I can only make three withdrawals per year, not counting RMDs. I plan on converting as much each year prior to 2025 to the Roth option (my company allows post-retirement conversions) while staying below the income limit ($170,000) that would trigger our Medicare premiums to increase.

I have not decided yet whether to leave the 401(k) with my company or move it to Fidelity where most of my other accounts are. I see leaving some funds in the company 401(k) as that is the only way to keep the Stable Value Fund option, my SWAN assets. Since REITS have performed well over the last 20 years, I will continue to move some Stable Value assets into that option (it was 0% a year ago). The equity option returns parallel those of equivalent ETFs, so poor returns reason for moving is not currently there.


When I started working almost 40 years ago, retirement income was likened to a three-legged stool: Pension, Social Security, and Investments (plus an expectation the company would provide medical). Reality today is pensions (and company provided retired medical) are gone for most non-government employees. How much you save in your 401(k) (hopefully you have access to one) is critical to being able to retire when you want to. I hope others will share how they are managing their 401(k) assets as the near or are in retirement. Also, a more normal equity ratio over the past ten years would have meant my 401(k) would be worth between 2.0 and 2.25 million today.

To see how this fits into my overall investment strategy, please read my earlier article titled "My Pre-Retirement Checklist: 3 Months To Go." This chart shows how much $1000 invested per month until the age 65 will be worth for various returns.









$ 926,060

$ 1,526,020

$ 2,624,813

$ 4,681,320


$ 741,564

$ 1,136,092

$ 1,801,055

$ 2,941,784


$ 582,737

$ 832,259

$ 1,219,971

$ 1,830,743


$ 446,008

$ 595,510

$ 810,072

$ 1,121,122


$ 328,302

$ 411,034

$ 520,927

$ 667,887


$ 226,973

$ 267,289

$ 316,962

$ 378,406

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: None of the investment options are publicly traded - only available within my company 401(k) plan. As with anything that effects your federal or state taxes, consult your tax attorney or accountant. Contents are my best understanding and some states treat these options differently.