MONEY second acts

Surprising Secrets of Successful Second-Act Career Changers

man showing insect specimens to students
Gallery Stock

A new report dashes stereotypes about older workers and their ability to find rewarding jobs.

Some upbeat news for older workers looking for a fresh start: It may be easier than you think to launch a second act—if you make the right moves.

Most older workers who seek career changes are successful, especially if they use skills from their previous careers, according to a new report out Thursday from the American Institute for Economic Research (AIER), a nonprofit organization dedicated to economic literacy. In the survey of 2,000 people, a career change was defined as a change in jobs that involves a new role with either the same or a different employer, in either the same or a different field.

According to the report, 82% of people 47 and older who tried to transition to new careers in the last two years were successful. Nearly 70% of successful changers saw their pay either stay the same (18%) or increase (50%), while 31% took a pay cut. As for job satisfaction, 87% of successful changers said they were happy with their change, and 65% felt less stress at work.

The findings fly in the face of stereotypes about older workers and their ability to find new jobs. It’s true that when older workers lose their jobs, it takes longer to find one. But many older people are in fact fully employed. The unemployment rate for workers 55 and older is less than 3.7%, compared with 5.5% for the national average.

And the number of older people working is growing: The percentage of people 55 and older in the labor force is more than 40%, up from 29% in 1993, according to the Bureau of Labor Statistics.

Still, the report is encouraging because an increasing number of older workers say they want to or need to work past traditional retirement age, but they don’t want to continue to do the same thing. Many are looking for a change and a new challenge, as well as less stress.

“Our research shows that older workers are finding rewarding careers, not just new jobs, later in life,” says Stephen Adams, AIER president.

The findings back up another recent survey by the AARP Public Policy Institute that was positive about older workers’ ability to make a career change, even those who had been unemployed for a while. The survey focused on workers 45 to 70 who had been jobless at some point in the last five years. Almost two-thirds of reemployed older workers found jobs in an entirely new occupation.

Of course, some of the unemployed didn’t choose to switch occupations; they were forced to do so by layoffs or changes in their industry. But for others, the change was a decision to do work that was more personally rewarding and interesting, or just less demanding with fewer hours.

It makes sense that pursuing a new career is a viable option for older workers, says Adams. “Older workers tend to have more experience and stronger networks, which they can leverage to make that transition.”

The AIER research found distinct patterns among those career changers who were successful compared with those who tried but didn’t make the leap into a new field or occupation. In some cases, workers remained at the same company but in a new role. For others, they changed where they worked, their occupation. and/or their field. Here are some lessons from the successful career changers.

Identify and capitalize on your transferable skills. The people who were successful assessed their skills and figured out how their job experience could apply to a new occupation. In some cases, changers took courses or additional training to hone those skills or develop new ones. But additional education wasn’t necessarily a hallmark of successful career changers. Many people become trainers in their field, consultants to their old firms, or teachers in their field of expertise. Others used their knowledge to launch a business. In one case, a medical school administrator left academia after 22 years and started his own business of freestanding clinics. In another, a truck mechanic who already had much of the required licensing started his own hauling business after taking seminars on relevant regulations.

Be realistic. People who weren’t successful tended to be those who wanted to leap into an entirely different line of work. It sounds great to open a restaurant or buy a vineyard, but it’s much harder to pull off. It’s a bigger risk financially, and your network of contacts will be less relevant. “The notion of ‘follow your dream’ is a wonderful sentiment, but you have to have a clear-eyed vision of what you bring to the table for your employer or a new venture,” says Adams.

It’s not good to be a lifer. Successful job seekers spent fewer years at the same employer and worked in a variety of roles for different companies over their lifetime. The longer you’ve been working, the more likely it is you’ve held several jobs, so the job-changing experience isn’t so new. But if you’ve been stuck in one job a long time, it’s going to be harder to make a transition.

Enlist family and friends. The most successful career changers said family support was important. That means having encouragement from friends and relatives, and a willingness for family to change their lifestyle to accommodate a different career. Successful career changers also asked for feedback from colleagues, friends, and family members about their aspirations. “People who were successful had encouragement and honest feedback from people who knew them well,” Adams says.

 

MONEY Ask the Expert

What to Say When a Job Interviewer Asks You an Illegal Question

Robert A. Di Ieso, Jr.

Q: I was recently being interviewed for a job, and it seemed to be going well. But then the interviewer asked if I was planning to have children. Is she allowed to do that?

A: If the question made you uncomfortable, there’s a good reason. It’s illegal to ask—and the person interviewing you may not even know it.

One in five hiring managers say they have asked a question in a job interview only to find out later that it was a violation of federal labor laws to ask it, according to a CareerBuilder survey.

In the same survey, one third of employers who were given a list of banned questions also said they didn’t know the queries were illegal.

Things that are out of bounds for companies to ask about include your age, race, ethnicity, religious affiliation, disability, plans for children, debt, and whether you are pregnant, drink, or smoke.

While it’s unlikely that an interviewer will bluntly ask your age or religion (though that does happen), a lot of interviewers veer into dangerous territory just by making small talk, says Rosemary Haefner, chief human resources officer at CareerBuilder. “Casual conversation is part of the interview process. When you’re chit-chatting, sometimes the conversation turns more personal.” In other cases, hiring managers want to make sure people are a good cultural fit, so they try to tap into other parts of a candidate’s life, Haefner says.

Sometimes it’s just how the question is framed that makes it illegal. For example, you can ask if a job candidate has been convicted of a crime, but not if he or she has an arrest record. You can’t ask a person’s citizenship or national origin, but it’s OK to ask if the person is legally eligible to work in the U.S.

Some hiring managers may be in the dark because they’ve never gotten formal training or don’t interview people often. But not everyone is just clueless. Anti-discrimination labor laws exist for a reason, says Haefner. “You shouldn’t be asked about information that’s not directly relevant to whether you can perform a job,” she says.

Understanding what’s allowed and what’s not is in a company’s best interest too. A job candidate who isn’t offered a position may say certain questions were used to discriminate against her and file a complaint with the Equal Opportunity Employment Commission or hire a lawyer. Though discrimination may be hard to prove, the company could face legal action and financial penalties.

If you’re the person doing the interviewing, check in with your HR department about training, and prepare your questions in advance so you are less likely to stray into illegal territory.

When you’re on the other side of the interview table, it’s a little trickier.

Whether you should answer a personal question is your choice, but if the question seems inappropriate, Haefner suggests responding with a question of your own. “Say, as diplomatically as possible, ‘I just want to clarify how that is relevant to the job.’”

If the questioner doesn’t take the hint, then it may not be a company you want to work for anyway.

MONEY Ask the Expert

Which Wins for Retirement Savings: Roth IRA or Roth 401(k)?

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: I am 30 and just starting to save for retirement. My employer offers a traditional 401(k) and a Roth 401(k) but no company match. Should I open and max out a Roth IRA first and then contribute to my company 401(k) and hope it offers a match in the future?– Charlotte Mapes, Tampa

A: A company match is a nice to have, but it’s not the most important consideration when you’re deciding which account to choose for your retirement savings, says Samuel Rad, a certified financial planner at Searchlight Financial Advisors in Beverly Hills, Calif.

Contributing to a 401(k) almost always trumps an IRA because you can sock away a lot more money, says Rad. This is true whether you’re talking about a Roth IRA or a traditional IRA. In 2015 you can put $18,000 a year in your company 401(k) ($24,000 if you’re 50 or older). You can only put $5,500 in an IRA ($6,500 if you’re 50-plus). A 401(k) is also easy to fund because your contributions are automatically deducted from your pay check.

With Roth IRAs, higher earners may also face income limits to contributions. For singles, you can’t put money in a Roth if your modified adjusted gross income exceeds $131,000; for married couples filing jointly, the cutoff is $193,000. There are no income limits for contributions to a 401(k).

If you had a company match, you might save enough in the plan to receive the full match, and then stash additional money in a Roth IRA. But since you don’t, and you also have a Roth option in your 401(k), the key decision for you is whether to contribute to a traditional 401(k) or a Roth 401(k). (You’re fortunate to have the choice. Only 50% of employer defined contribution plans offer a Roth 401(k), according to Aon Hewitt.)

The basic difference between a traditional and a Roth 401(k) is when you pay the taxes. With a traditional 401(k), you make contributions with pre-tax dollars, so you get a tax break up front, which helps lower your current income tax bill. Your money—both contributions and earnings—will grow tax-deferred until you withdraw it, when you’ll pay whatever income tax rates applies at that time. If you tap that money before age 59 1/2, you’ll pay a 10% penalty in addition to taxes (with a few exceptions).

With a Roth 401(k), it’s the opposite. You make your contributions with after-tax dollars, so there’s no upfront tax deduction. And unlike a Roth IRA, there are no contribution limits based on your income. You can withdraw contributions and earnings tax-free at age 59½, as long as you’ve held the account for five years. That gives you a valuable stream of tax-free income when you’re retired.

So it all comes down to deciding when it’s better for you to pay the taxes—now or later. And that depends a lot on what you think your income tax rates will be when you retire.

No one has a crystal ball, but for young investors like you, the Roth looks particularly attractive. You’re likely to be in a lower tax bracket earlier in your career, so the up-front tax break you’d receive from contributing to a traditional 401(k) isn’t as big it would be for a high earner. Plus, you’ll benefit from decades of tax-free compounding.

Of course, having a tax-free pool of money is also valuable for older investors and retirees, even those in a lower tax brackets. If you had to make a sudden large withdrawal, perhaps for a health emergency, you can tap those savings rather than a pre-tax account, which might push you into a higher tax bracket.

The good news is that you have the best of both worlds, says Rad. You can hedge your bets by contributing both to your traditional 401(k) and the Roth 401(k), though you are capped at $18,000 total. Do this, and you can lower your current taxable income and build a tax diversified retirement portfolio.

There is one downside to a Roth 401(k) vs. a Roth IRA: Just like a regular 401(k), a Roth 401(k) has a required minimum distribution (RMD) rule. You have to start withdrawing money at age 70 ½, even if you don’t need the income at that time. That means you may be forced to make withdrawals when the market is down. If you have money in a Roth IRA, there is no RMD, so you can keep your money invested as long as you want. So you may want to rollover your Roth 401(k) to a Roth IRA before you reach age 70 1/2.

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

Read next: The Pros and Cons of Hiring a Financial Adviser

MONEY salary

How to Get the Raise You Deserve

Two-thirds of people asking for a raise get at least some of the money they request. MONEY's Donna Rosato has tips on how to ask for more pay.

MONEY Retirement

The Pros and Cons of Hiring a Financial Adviser

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: Should I use a financial adviser to manage my retirement portfolio or should I save money by going it alone? – Carl Vitko, Cicero, Illinois

A: That depends on how comfortable you are doing it yourself. If you are familiar with the basic concept of asset allocation and you’re comfortable choosing investments, you shouldn’t have any trouble building a low-cost diversified portfolio on your own, says Robert Stammers, director of investor education at the CFA Institute.

But you don’t necessarily have to pay an adviser to get help. Most people have the bulk of their retirement savings in a 401(k). Many 401(k) plans offer low-cost index funds and target date funds; the latter is a diversified stock and bond portfolio that becomes more conservative as you age. Many employer plans also offer free tools to help you assess your investing options and assemble a portfolio appropriate for your age and risk tolerance. According to the Plan Sponsor Council of America’s annual survey of 401k plans, 41.4% of plans offer some kind of investment advice.

Taking advantage of that advice can pay off. In a recent Voya Financial survey of full-time workers, people who saved the most for retirement used online financial advice tools and educational materials provided by their employers at more than double the rate of the lowest-scoring savers.

But the do-it-yourself approach requires time to monitor your portfolio and the discipline to adjust to different market conditions. You also have to keep your emotions in check when markets are volatile, which investors admit they have a hard time doing. In a survey by Natixis Global Asset Management, 65% of investors say they struggle to avoid making emotional decisions about their money during market shocks.

Even more worrisome: 81% of investors say expectations for double digit gains going forward are realistic and 54% believe their portfolios will perform better this year than in 2014, when the Standard & Poor’s 500 Index rose by 13%, according to the Natixis survey.

Coming off three consecutive years of market returns that exceed 10%, that kind of enthusiasm is not surprising. But historically, the stock market has averaged 7% annual gains. Having an objective investment adviser can help ground your expectations in reality. And there’s evidence that some investors do better getting some professional advice.

Median annual returns for 401(k) holders who got professional help through target date funds, managed accounts, or their plan’s online advice were 3.32 percentage points higher than returns for people who invested on their own, even after taking fees into account, according a 2014 study by benefits consultant Aon Hewitt and Financial Engines, which provides investment advice to 401(k) plans.

If you decide to go the professional route, you have choices. An adviser at a large investment firm typically charges a fee of about 1% of the assets he or she manages for you. A new type of investment service known as a “robo-adviser” uses computer algorithms to build low-cost portfolios and charges as little as 0.5% a year. (To better understand how robo-advisers work, read “Would You Trust Your Retirement to a Machine?“)

You should consider enlisting a financial adviser who can do more than manage your investments. A certified financial planner (CFP) takes a more holistic approach to your retirement readiness. They can help you figure out whether you are on track with your savings and how other investment options, such as Roth and traditional IRAs, fit into your retirement plans. Best to go with a CFP who charges a fee for advice versus one who takes commissions on products he or she sells you. That cost can range from $2,000 to $5,000 a year. You can find fee-only planners through the Financial Planning Association and National Association of Personal Financial Advisors.

If you decide to go it alone, you’ll need to be vigilant about monitoring your plan, and should take advantage of any free advice available to you through your 401(k) provider. But as you get nearer to retirement, consulting at least once with a professional and reputable financial adviser is a wise move, says Stammers.

MONEY Taxes

Here’s What to Do If You Can’t Finish Your Taxes On Time

working father with two kids
Paul Bradbury—Getty Images Too busy to finish up your taxes in the next week? No worries.

The April 15 tax-filing deadline is here. If you're not going to be done by Wednesday night, relax. You have options.

Tax Day is upon us. If you haven’t pulled your documents together or made real progress on your tax return yet, filing for an extension by April 15 sounds like a pretty good idea. That’s what about 12 million people do each year, according to the IRS.

Getting more time isn’t as simple as it sounds. Here are seven things you should know if you can’t make the deadline.

1. You still have to act by April 15. Anyone can file for an automatic extension, but the paperwork is still due on April 15. Filling out Form 4868 will give you another six months to finish, though you can file your taxes any time before October 15. You can file for an extension for free through IRS Free File. Check with your state to see if you need to file a separate application for an extension.

2. If you owe money, you have to pay up. Just because you’re getting an extension, you don’t get more time to pay your taxes. You’ll need to fill out enough of your tax return to come up with a rough estimate of what you owe. Use a tax estimator like the one the IRS provides. Fail to pay, and you’ll be hit with a penalty of 0.5% to 1% of what you owe for each month or part of a month your bill is outstanding.

3. Failing to file is worse than failing to pay. If you simply ignore tax day and don’t file or apply for an extension—and you owe taxes—you’ll be hit with a failure-to-file penalty, which is usually 5% of the unpaid taxes for each month or part of a month your return is late, up to 25% of your bill.

4. Your bank may be kinder than Uncle Sam. You may want to pay your taxes with a credit card if you don’t have the cash on hand. The interest and fees you’ll pay with plastic (roughly 2% of your tax bill) may be less than the interest and penalties you’d face on a late tax payment.

5. You may not need an extension. If you’re asking for an extension just because can’t come up with the money (not because you don’t have your paperwork in order), you’re better of filing your return and paying what you can. You can request a short extension of 60 to 120 days to pay. You will still pay penalties and interest, but at a lower rate.

The IRS also offers installment agreements when you can’t pay your taxes on time. You’ll have to pay a fee to set up the plan—use Form 9465-FS—and you’ll be billed monthly. The IRS must approve the plan, and you can’t stretch out the payments for more than three years.

6. If you are owed a refund, you won’t be penalized for not filing. Of course, you won’t get your refund until you file your return. So why let Uncle Sam hold on to your money any longer than necessary?

7. If you’re a chronic procrastinator, the IRS won’t issue your refund. If you don’t do your taxes three years running, even if you’re owed a refund, the IRS will keep your money.

Related: Watch for the Obamacare tax scam targeting last-minute filers

MONEY Workplace

Why Checking Email After Work Is Bad for Your Career—and Your Health

Robert A. Di Ieso, Jr.

Q: Should I check work email outside of normal business hours?

A: The availability of smartphones and tablets has made it easy and common to check email anytime, anywhere: 59% of American workers say they use their mobile devices to do work after normal business hours, according to a recent Workplace Options survey.

But that convenience comes at a price. Checking email constantly can lead to burnout and health problems, says Dean Debnam, chief executive officer of Workplace Options, which provides employees with work-life balance support services.

Whether you should check work email regularly depends on your personal preference as well as your company culture, Debnam says. For many, the ability to field email anytime, anywhere is a good thing. It can free you from long hours in the office and enable you to respond quickly to important or urgent issues. You may feel better not having a full inbox when you log on in the a.m. About 80% of workers say using a smart phone, tablet, or laptop to work outside of typical business hours is positive, according to a 2014 Gallup poll.

For some professions, it is just part of the job. Maybe you work with people across different time zones. Or you’re a consultant, lawyer, or salesperson who needs to be available to clients all the time. (A prestigious law firm had to apologize to employees recently when its announcement of a new policy eliminating email overnight and on weekends turned out to be an April Fool’s prank.)

On the downside, constantly being available online translates into more work hours. Though just 36% of workers say they frequently check in outside of regular office hours, those who do log an additional 10 hours of work a week—twice as many hours as those who rarely or only occasionally check email remotely, according to the Gallup survey.

Younger workers and men are more likely to be in constant contact. About 40% of Gen-X and Gen-Y workers check email frequently outside of work vs. one-third of Baby Boomers, and 40% of men vs. 31% of women, according to the Gallup poll.

The more money you make and more education you have, the more likely you are to be among those frequently connected. Employees with a college degree or higher and people who earn more than $120,000 a year are twice as likely to constantly check email than those with lower education levels and salaries below $48,000 a year. That’s a reflection of how prevalent email communication is for higher education and income groups in white collar jobs—or the pressure many workers feel to respond immediately.

There’s lots of evidence that that kind of connectivity is bad for your health, your psyche, and your productivity.

First, it can seriously intrude on your personal life. A survey of 1,000 workers by Good Technology, a mobile-software firm, found that 68% of people checked work email before 8 a.m., 50% checked it while in bed, 57% do it on family outings, and 38% regularly do at the dinner table.

And your communication might not be as sharp or thoughtful when you’re doing it off-hours. It is hard to be at your best when you’re responding to a work issue late at night or in a non-work setting. “If you check in during a family dinner or with your kids running around in the background, you’re going to be distracted,” says Debnam.

Working around the clock can cause serious health problems too. A piece in Medical Daily cited a recent study in the journal Chronobiology International that found that checking your work email at home, or taking a call from the boss on weekends, could lead to psychological, gastrointestinal, and cardiovascular problems

If you don’t want to be constantly connected, set expectations up front by not getting into the habit of monitoring and responding to email after hours unless there’s an important reason to do so. And if it’s just part of your company culture? Well, then you have to decide whether that’s a company you want to work for, says Debnam.

 

MONEY Careers

Surprising Ways Older Workers Find Second Act Jobs

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Alamy

If you're older and have been out of work for a while, try these strategies to land a new job

What’s the secret to landing a new job when you’ve been out of work a long time?

A new report by the AARP Public Policy Institute uncovered some surprising strategies that older workers are using to get back into the workforce.

That’s important because, while the job market is significantly better overall, the situation is still dismal for the long-term unemployed. The jobless rate for people out of work six months or longer is 30% vs. 5.5% overall.

Older workers make up a distressingly large portion of that group: 45% of job seekers 55 and older have been looking for work for six months or longer.

The AARP report examined the job search strategies that led to reemployment for people age 45 to 70 who were unemployed some time during the last five years.

It found big differences in job search strategies between older workers who landed jobs and those who are still not working.

The overall picture is mixed: Among those older workers employed again after a long time out of the workforce, some were earning more, getting better benefits, and working under better conditions. But for many, the jobs were not as good as the ones they had lost: 59% of long-term unemployed older workers made less money, while 15% earned the same and 25% made more.

So, what set the successful job seekers apart? These moves stand out.

  • Embrace change. Almost two-thirds of reemployed older workers found jobs in an entirely new occupation and women were more likely to find work in a new field than men. Of course, some of the unemployed didn’t choose to switch occupations. But for others, the change was a decision to do work that was more personally rewarding and interesting or even less stressful with fewer hours. Whether it was by choice or design, broadening your job search may pay off.
  • Go direct. Older reemployed workers were much more likely—48% vs. 37% of those still looking for work—to contact employers directly about jobs instead of just applying to the black hole of online job postings.
  • Network strategically. Everyone knows that networking is the best way to get a new job but apparently talking to everyone you know may not be the most effective method. While half of those who landed a new job reached out to their network for leads, only 34% of the unemployed used personal contacts at all. But the reemployed were less likely to rely on friends and family to find out about job opportunities, focusing instead on professional contacts.
  • Move fast. When hit with a job loss, many people use it as a time to take a break or think about what they want to do next. That lost time can cost you. The reemployed were much more likely to have begun their job search immediately or even before their job ended than those who are still unemployed.

A couple other surprising findings about what works and what doesn’t: Conventional advice is that the long-term unemployed need to keep their skills up to date if they are jobless for a while. While that can certainly help, additional training didn’t make much difference between those who landed a job and those who remained out of work.

As for social media: While 56% of the reemployed found job boards a good source of job leads, just 13% said online social media networks such as LinkedIn and Facebook were effective in helping them get a new job.

Among the most ineffective strategies: Using a job coach, talking with a headhunter, and consulting a professional association.

MONEY 401k plans

What You Can Learn From 401(k) Millionaires in the Making

These folks are doing all the right things to reach retirement with a seven-figure nest egg.

The 401(k) has become the No. 1 way for Americans to save for retirement. And save they have. The average plan balance has hit a record high, and the number of million-dollar-plus 401(k)s has more than doubled since 2012. In the first part of this series, we shared tips for building a $1 million retirement plan. Now meet workers on track to join the millionaires club—and get inspired by their smart moves. Once you hit your goal, learn more about making your money last and getting smart about taxes when you draw down that $1 million.
  • Greg and Jesseca Lyons, both 30

    Greg and Jesseca Lyons

    Carmel, Indiana
    Years to $1 million: 15
    Best move: Never cashed out their 401(k)s

    Though only 30, Greg and Jesseca Lyons are well on their way to reaching their retirement goals. The Lyons—he’s an operations manager for a small research company, she’s a product development engineer for a medical device maker—are on the same page when it comes to planning for the future.

    College sweethearts who have been married seven years, they made a commitment to start investing for retirement with their first jobs. They contribute 15% of their salaries. Employer matches bring that annual savings rate to about 19%. Together, they have $250,000 in their retirement accounts, invested 90% in stocks and 10% in bonds.

    Unlike many young people, they have resisted the temptation to cash out their 401(k)s when they changed jobs. Though they dialed back contributions for about six months when they were saving for a down payment, the Lyons didn’t stop putting money away. “We have stuck with the idea that retirement money is retirement money forever,” says Greg. His goal is to retire by age 60. For Jesseca, saving is about independence and financial security. “I love what I do, so I don’t see retiring early. But I don’t want to be worried or stressed out about our money either,” she says. “I am not going to sacrifice our retirement just to live a certain lifestyle now.”

  • Tajuana Hill, 46

    By starting to save for retirement at age 26, Tajuana Hill has put herselv on track to grow a seven-figure 401(k).
    Jesse Burke

    Indianapolis
    Years to $1 million: 17
    Best Move: Keeps raising her savings rate

    It’s taken Tajuana Hill, an employee trainer with Rolls-Royce, two decades to max out her 401(k), but she’s been a steady saver since her twenties. When she joined the firm at age 26, she put 10% of her pay into her plan right away. As her income rose, she ramped that up to 12%, then 17%, and finally 20% in January.

    Her reward: $224,000 in her 401(k)—all the more impressive since her employer offers no match. What has helped Hill is a side business she launched three years ago, Mimosa and a Masterpiece, an art studio where students can sip a drink during painting classes taught by local artists. The extra income let her pay off her credit cards, freeing up earnings from her day job so she could boost her 401(k) contributions.

    “When I retire, I hope to do it as a millionaire,” says Hill. If she sticks to this regimen, her 401(k) could top $1 million just as she reaches 65.

  • Steven and Melanie Thorne, both 37

    Steve and Melanie Thorne have been disciplined about hiking their retirement contributions with every raise. Melanie saves 10% of her pay in her plan, while Steve sets aside 12%. They even save extra in Roth IRAs.
    Jesse Burke

    York, Pennsylvania
    Years to $1 million: 15
    Best move: Invest in low-cost stock index funds

    Having a healthy stake in stocks is a hallmark of 401(k) millionaires. With decades to go until retirement, you can ride out market swings. That’s a philosophy Steven and Melanie Thorne have embraced. Together they have $310,000 in their workplace retirement plans, Roth IRAs, and a brokerage account, all invested 100% in stocks. “We are young, so we can be more aggressive,” says Steve, a security officer at a nuclear power plant.

    Investing is a passion for Steven, who first started saving for retirement with a Roth IRA when he was 18. He says he follows Warren Buffett’s philosophy about buying stocks: Be greedy when others are fearful, be fearful when others are greedy. But, he says, he and Melanie, a nurse, are buy-and-hold investors and keep most of their portfolio in low-cost index funds.

    Steven and Melanie have been disciplined about hiking their retirement contributions with every raise. Melanie saves 10% of her pay in her plan, while Steven sets aside 12%. They even save extra in Roth IRAs. They live below their means and direct tax refunds into retirement accounts, as well as save for college for their five year old son Chase. “We look for extra ways to save cash and keep our investment costs low,” says Steven.

  • Jonathan and Margaret Kallay, 56 and 53

    By saving more as big expenses fell away and their incomes rose, Jonathan and Margaret Kallay have been able to amass 401(k)s worth a combined $750,000.
    Jesse Burke

    Westerville, Ohio
    Years to $1 million: Four
    Best move: Power saving late

    Life can get in the way of saving for retirement, but ramping up your savings later in your career pays off. Jonathan and Margaret Kallay contributed only small amounts to their retirement plans early on. “It wasn’t much, about $50 a paycheck on a $13,000-a-year salary,” says Jonathan, a firefighter. Margaret, then an ER nurse, put away 5% of her pay.

    As big expenses fell away, the Kallays saved more. Married in 1993, the couple each paid child support for daughters from previous marriages until the girls reached 18. Once that ended and they paid off car loans, the money went toward retirement.

    Earning more has helped too. Jonathan worked extra shifts as a paramedic. Margaret got a business degree and is now a vice president at an insurance company, where she gets a generous company match. They each put about 15% in their 401(k)s, which total $750,000 and could hit $1 million in four years. They plan to quit work soon to spend more time traveling and spending time with their daughters and 5-year-old twin grandsons. “We’ve made a lot of sacrifices to invest for retirement,” says Jonathan. “It’s all been worth it.”

  • Mel and Heather Petersen, both 35

    Mel and Heather Petersen with sons Carter and Perry

    Reidsville, N.C.
    Years to $1 million: 17
    Best move: Buying rental properties to bring in more money

    Despite modest incomes in the early years of their careers, Mel and Heather Petersen have accumulated nearly $200,000 in retirement savings. Their strategy: Consistent saving. Mel, a public school teacher, says his salary has averaged about $40,000 most of his working life. Today he earns $50,000 a year. Heather, a marketing analyst who contributes 10% of her income to her 401(k), has seen a steadier increase in her earnings over the years, bringing the couple to a six-figure combined income.

    “We have always saved money for retirement no matter what our income, and never stopped no matter what financial challenges we have faced,” says Mel, dad to two boys, 8-year-old Carter and 4-year-old Perry.

    It helps that the Petersens supplement their retirement savings with income from rental properties that they began buying seven years ago. Several are paid off, and after expenses they gross about $5,000 a month in rental income. They hope to continue investing in real estate to boost their retirement savings. “We want to max out our retirement accounts down the road,” says Mel.

  • Larry and Christianne Schertel, both 58

    Larry and Christie Schertel

    Valatie, New York
    Years to $1 million: zero
    Best move: Kept faith in stocks

    Investors have enjoyed a roaring bull market for the past six years. But financial markets are cyclical. Even the most dedicated savers can panic and abandon stocks when the markets goes south.

    Despite the massive downturn during the Great Recession, Larry and Christianne Schertel didn’t budge from their 75% stock allocation. “When the market collapsed in 2008, we stayed the course and were nicely rewarded as the markets rebounded,” says Larry, an operations manager at a transportation company until his retirement this January. As they closed in on retirement, the Schertels reduced equities to about 60%. Together with Christianne, who works as an elementary school teaching assistant, the Schertels have just over $1 million in retirement accounts.

    In addition to their resolve during market fluctuations, the Schertels say automating their savings, living below their means, limiting debt, and investing in low-cost funds helped them reach the $1 million mark. “There really is no magic to it,” says Larry. “It is just being disciplined.”

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