‘They aren’t panicked by everyday gyrations of the market’: columnist on 401(K) millionaires

2020 saw record levels of unemployment due to the coronavirus. However, there were also thousands of workers who managed to cross the millionaire thresholds with their 401Ks or IRAs. Michelle Singletary, a nationally syndicated personal finance columnist for the Washington Post, joins Yahoo Finance’s Sibile Marcellus and Kristin Myers to discuss the findings and what it means for the economic diversity of the U.S.

Video Transcript

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SIBILE MARCELLUS: Welcome back to "A Time For Change." I'm Sibile Marcellus. The coronavirus pandemic has led to a record level of unemployment levels, but what you may not have realized is that a separate number of workers managed to cross the millionaire threshold amid the pandemic. That's right. Tens of thousands of Americans with 401(k)s or IRAs saw their retirement accounts reach one million or more in 2020.

Joining us now is Michelle Singletary. She's a nationally syndicated Personal Finance Columnist for the "Washington Post." Now Michelle, the CARES Act made it possible for millions of Americans who are workers to tap their retirement accounts in order to help them stay afloat if they were facing financial hardship. So how is it that a number of Americans were able to join the millionaire's club amid the pandemic?

MICHELLE SINGLETARY: Yeah, so those people who had to tap their retirement account either lost their jobs, or had less hours, or their spouse more likely lost their job and had less hours. But there were so many more people who are still working, have their regular income coming in, and they didn't tap it. Not only that, but they actually increased their contributions to their plan because they didn't have all these extra expenses because we were traveling less, we're eating out less. So they had more money to put into their plan.

But many of them have been doing this for years, for decades. The average millionaire, 401(k) millionaire, has been putting money into their account for about 28 years, and doing it at a great clip, like 10% to 15% of their income. So if you can imagine over all that time, even though the market has kind of gone like this, they held steady. And so even when the market tanked in March, and I know my heart just dropped too, they stayed steady and didn't make any changes. And so they've reaped the benefits of that steady savings.

SIBILE MARCELLUS: And what would you say helped them reach that millionaire threshold, and basically cross it? Was it their contributions, or was it because the markets were hitting record highs amid the pandemic and all that financial hardship?

MICHELLE SINGLETARY: Right, it was a couple of things. Their contributions. So they were making a contribution, and then increasing them every year. That's one.

They were putting in anywhere from 10% to 15% of their income. So, you know, when you start out, you can't do that. But as you can imagine, when you get into your higher earning years, that's a lot of money, especially if you can max out.

They also didn't panic when the markets went down. So, you know, the Great Recession, the market's just tanked. We were in a recession. And people were like, I can't take this. They panicked. They pulled money out, and they realized those losses.

Those people who are 401(k) or TSP, the government, which is who stuck in there, they saw those losses come back and then some. So they aren't panicked by the everyday gyrations of the market. They have a plan. They stick to it. They don't panic. And so those are the reasons why they've been able to become a millionaire during a time when the economy is really rough for a lot of people.

KRISTIN MYERS: Michelle, your column is called, "The Color of Money," which I love because I think a lot of folks don't really realize, or they sometimes forget, that race is absolutely a part of our financial health and wealth. And we hear a lot of, at least when it comes to personal finance, a lot of platitudes. You know, pay down your debt, save more money. A lot of these general broad solutions, which sometimes are not really feasible, especially for households of color that are being disproportionately impacted, and we saw that a lot throughout 2020 with the pandemic.

Folks of color being disproportionately impacted in terms of health care, in terms of the labor market. So now that we have this new year, what would you say to start this besty-- this year off on the right foot, at least on a personal finance point, for those communities of color that have been so hard hit?

MICHELLE SINGLETARY: Yeah, I think that's such a great point. In fact, I did a 10-part series for the "Washington Post" on race and money, addressing these very issues that you brought up. That there's often these myths and misconceptions that Blacks are not saving enough, that we don't value education, therefore we don't have the right jobs. But a lot of times we don't realize that slavery, and Jim Crow, and discrimination, segregation all have played a part in African-Americans having less net worth. And so the series sort of covered the reasons why that is.

Now, as an individual, whether the reasons are legit or not, there's some things that you can do as you approach the new year. For example, as much as you can, as best as you can, contribute to your retirement plan at work, as you are already talked about. How you too can become a millionaire in your retirement account. It's going to take a couple of decades, but nonetheless, you can do it.

The other thing is, you know, watch your spending. Right now, a lot of things that we normally do have been shut down. We're not going out as much. Maybe you didn't take that summer vacation that you couldn't afford anyway. So use that opportunity to save more and get rid of debt.

Those are the two ways that you can become, not just a millionaire, but just wealthy and prosperous, is that you save as much as you can, as often as you can. And watch how much debt you take on, and I'm talking all kinds of debt. I have no-- I do not subscribe to this, there's good debt and bad debt. There's only debt.

So I'm saying, watch what you spend on your home. Watch what you spend when you buy a car. Even to send your kid to college, all of that debt is a weight, and that weight can prevent you from being prosperous, and becoming that millionaire in your retirement plan.

SIBILE MARCELLUS: Michelle Singletary, that's some great advice to help people be wealthy and prosperous. Thanks so much. Nationally syndicated Personal Finance Columnist for the "Washington Post." We really appreciate having you here, Michelle.

MICHELLE SINGLETARY: Oh, it's my pleasure.

KRISTIN MYERS: You'll have to come back and join us sometime again in the future.