How This Fool Earned $1.5 Million

In a recent article, I explained how almost anyone can become a millionaire, given sensible investments and a fair amount of time. Little did I know that one of my Foolish readers would write in to offer living proof.

M. K. explained that he amassed a net worth of $1.5 million by socking away some $5,000 per year for 25 to 30 years in a retirement account, and by taking advantage of his employer's profit-sharing and stock investment plans. He said that much of his money was in the Fidelity Balanced Fund (FBALX), and that overall, his portfolio averaged about 8% to 10% per year. His final thought? "It wasn't rocket science."

It sure isn't. When I visit a compounding calculator and enter $5,000 per year growing at 9% for 30 years, I end up with $743,000, a rather hefty sum. But it's only about half of his nest egg. What gives? For one thing, his employer was also kicking in its own contributions, which obviously makes a huge difference in the long run.

Do some digging
An online service called BrightScope rates numerous companies' retirement plans according to overall quality, company generosity, investment menu quality, and more. Here is a smattering of ratings for some of the Dow component companies, for example:

Data: BrightScope.

A big difference
If you don't think your employer can make that much of a difference, look more closely at BrightScope's ratings. The site compares each rated company with the top-rated company in its peer group, then shows what impact any relative shortcomings in its retirement plan may have for workers there.

For instance, take Apple, a company that was rated just 63, with "average" ratings for its generosity and menu quality. BrightScope asserts that the difference between the Mac maker and its peer leader (22 points) translated to 12 additional years of work, and as much as $1.1 million in lost retirement savings, according to its calculation methods. In other words, if your company doesn't provide top benefits, you might end up with a considerably smaller nest egg, and a far lengthier career than you'd like.

Look closely when comparing companies' retirement benefits. If you're contributing $5,000 per year to a 401(k) plan, an employer that matches 25% of those contributions will kick in an additional $1,250 per year. Invested annually, that extra amount will yield more than $185,000 if it grows at 9% for 30 years. And if you earn $100,000, and your employer chips in 50% of your contributions up to 6% of your income, you're looking at a $3,000 annual sum from your employer. That can amount to more than $445,000 extra toward your retirement under the same conditions.

Don't neglect your retirement savings and end up a victim of retirement killers in this brutal environment. Always consider what a prospective employer will do for you to help you save for retirement.

Learn more:

• 4 Ways to Destroy Your Retirement
• Remember IRAs
• 3 Investment Myths

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