The 5 Types of 401(k) Holders (Which One Are You?)

In 30 years as a CPA, I've sat across from people at every income level. High earners with almost nothing saved, modest earners with more than you'd believe, and every single time it came down to one thing: which of the 5 types they were. By the end of this video, you're going to know exactly which type you are of a holder of a 401 and what it's actually costing you and what one move you need to start making it right, right now. This is Building Your Money Machine, where we help you master your money. Eliminate financial stress so you can live life by choice. And I'm your host, Mel Abraham. 5 types, one of them's you. Let's find out which one. Let's do this. All right, let's get into it. You're going to see yourself somewhere in the next few minutes, and when you do, don't look away because I want to ask some questions. I want you to get to, to think about things like the first question really is this: why are we building wealth in the first place? Because this is an important question. When we're going to talk about the 5 types of 401 holders and things like that, before we get there, let's ask ourselves why. Because most financial content never bothers to ask, why build wealth in the first place? And it sounds really obvious, but stay with me here for a moment, because when I ask that question, I get one of two answers in many cases. The first one is, "Hey, I've been told to." And look, I get it, but being told to do something doesn't mean you're doing it right and definitely doesn't mean that you're doing it for the right reasons. So, the second answer I hear is, "Well, I want to retire someday. I don't want to work forever. I want freedom of choice." That, I love that answer. I really do. That's the real reason, one of the reasons. But here's the problem with that also. They haven't defined the destination. They haven't got a vivid picture about their life that they're actually trying to build. So, what ends up happening is they build towards a number. And if that number isn't connected to the real vision for their life, one of two things happens. They get to the number and they don't get the life, or they overshoot it and they keep working, they keep grinding, and they never give themselves permission to arrive. See, I had a couple that I worked with for years and they did everything right. They contributed consistently. They, they got the company matched, they maxed it out. They followed what I, I call the Wealth Priority Ladder almost to the letter, and they did it for decades. And then they retired. And within a few months, they were fighting more than they had ever had. Not, not about the money. They had plenty of money, but they were fighting because they never defined what this next season, this next chapter of life was actually for. Not as individuals and not as a couple. What was the purpose? What were they retiring to? Both of them ended up taking part-time work just to feel stimulated again. And it wasn't until we slowed them way down and got really specific, really vivid about what each one of them wanted and what they wanted as a couple together, that things started to shift. See, once the money had a higher purpose, their life had a higher purpose and everything changed. They started appreciating what they had built. Enjoying what they created in the relationship, which had gotten a little frayed in those early months, started to heal. So, here's what I want you to hold on to before we go anywhere else. The 401, it's not the point. The life is the point. The 401 is the vehicle. And a vehicle without a destination is just a very expensive way of driving in circles. And that's the challenge. So, as we go through these 5 types, I want you to remember that because the type you are right now isn't a verdict. It's just a starting point. It's a stopping point for a moment. And every single one of them has a path forward. So who are these 5 types? What are they? And so let's start with some real numbers because I want to ground this in reality before we get into the identity and The first thing is to realize this. Every year Vanguard publishes a study called How America Saves. It covers nearly 5 million 401 investors, and it's one of the most comprehensive pictures of retirement behavior that we have in this country. And here's what the data tells us. For someone earning $50,000, the average 401 balance is around $24,000.. But the median, the number that's right in the middle where half the people are above it and half the people are, are below it, is only $7,000. Y'all, that is not a small gap. That is a chasm. Then they said for someone earning between $100,000 and $150,000, the average balance is $188,000, but the median is $98,000, less than half the average. See, I think that that tells us that a small number of high savers are making the rest of the group look better than they actually are. And then there's this: more than 30% of Americans making over $200,000 a year are still living paycheck to paycheck. Paycheck to paycheck. Somewhere out there, someone is pulling up their bank app to make sure that they can cover the guacamole they just ordered, and they're on a $200,000 salary. Dang it. That's not the way it's supposed to be. See, the income's not the problem. The behavior is the problem. And the behavior comes from identity, which is why it matters that 25% of 401 investors still don't contribute enough to capture the full employer match. Man, that's free money left on the table. It's like me walking into your house, dropping $100 bills, and the only thing you have to do is to pick it up is drop $100 on top and pick up both. But they're not every single year. So that brings us to the 5 types. So let's go through each one, figure out where you might be, and then show you what to do about it. And Type 1 is the avoider. This, this, the avoider is really the first type. And if you're watching this video, there's a real chance that this one makes you a little uncomfortable because the avoider isn't lazy. They're not irresponsible. They're not necessarily even broke. They just haven't looked. See, the statement comes in, whether it's in the mail or email, whether it's digital, whether it's physical in an envelope, and it just stays there unopened. The tab gets bookmarked and never gets clicked. And here's how you know that if this is you. If I asked you right now, you couldn't tell me your current balance without having to look it up right now. You don't know what funds you actually are invested in. And you haven't touched the contribution settings on your, on your 401, or you haven't even looked at the allocation since the day you enrolled. Now, you're not sure in many cases whether you're even capturing the full, full match. And then here's one that doesn't get talked about enough. Maybe you're in a relationship where you fully handed this over to your partner. You've told yourself that it's fine because you trust them. But trust isn't a financial strategy. And what happens if something happens to them? What happens if the relationship changes? See, you need to know this, not the same level of detail maybe as your partner necessarily, but you need to know to be able to do it, to be self-aware, to set this up and to know what's going on. Not knowing what's in your 401 is a little like owning a house and never checking whether the roof leaks and everything's totally fine until it rains. So now, why does the avoider avoid? Now, this is just my experience. It's almost never apathy. It's almost always some level of embarrassment. They don't understand what they're looking at. They feel like they should understand it by now, but they don't want to ask the question because it feels like they're admitting that they've fallen behind on something that they were supposed to have figured out years ago. And so you don't avoid the statement because you don't care. You avoid it because you care too much about what it might say about you. And that's worth naming out loud. I mean, it really is, because the moment you name it, you can do something about it. The fix really isn't complicated. Open the statement, take a look, find out if you're capturing the full employer match. If you're not, fix that first. That's the single most expensive line item in your financial life right now, and you may not even know it exists. That's Type 1. Just open your eyes and look. Open up the conversation. Be okay not knowing, because trust me, I didn't know any— everything. Still don't know everything. I'm still asking questions. All right, that's Type 1. Now let's talk about someone who didn't avoid. They just got a late start. Type 2, the late starter. This person got serious about their 401, but they didn't until probably their late 40s or their 50s. And maybe life happened, maybe a divorce, business didn't work out, something, some stretch of years where survival was the priority and retirement felt like a luxury problem more than anything else. And that's the thing that we need to play around with. And it's not about blame. None of this is about blame. None of this is about beating yourself up because that does no good. Whatever decisions you made in the past, you made in the past. And maybe they were just going through the motions. And one day they looked up and realized how far behind the median they actually are. However they got there, they're here. That's what matters. And the first thing I want to say is that the late starter is this: stop paying for it twice. See, you already paid for those years. With the decisions you made, the circumstances you faced, the things you wish you had done differently. That's all payment. Paying for them again with regret is a second tax you don't owe. So I've seen people completely paralyzed by the gap between where they are and where they think they should be by now. And that paralysis costs them years. And the years that they actually have left, which is the one thing they can least afford to waste. So, we build with what we have from where we are without comparing our timeline to anyone else's. Now, here's the way you start to play around because it doesn't matter where you are or where someone else is. We just start. We just start. Now, when I look at this, this is what I need the late starter to hear though, because This is the part that can actually hurt them. Urgency without direction is dangerous. When you feel behind, you're vulnerable. You're looking for shortcuts. You're becoming susceptible to investments that promise to close that gap really quickly. I can catch you up. And there are plenty of people out there who, who you know, or who know that very emotion and who'll take your money with a story. About how this one thing is going to change everything. It's going to catch you all up and you're going to be good. If something sounds too good to be true at 52, it is too good to be true at 52. It really is. That's how I got caught in the, in the daggone Ponzi scheme. See, the late starter doesn't need a miracle investment. They need a clear plan. They need maximum contributions and a willingness to just redefine what the finish line looks like. Because here's the good news. The finish line is probably closer than you think. And almost certainly looks different than you've been imagining. All right? That's the thing that I think we need to think about. Listen, at the same time, if you're 50 or older, the tax code's on your side. You get to contribute an extra $8,000 as of the filming of this to your 401 over and above the limit. If you're between 60 and 63 right now, that jumps to $11,250. So bottom line is there are ways to catch up if we can get the cash to put it in and, and get it to work for us. So we build with what we have. We stop paying for it twice and we get into it. That's the game. All right, listen, if you haven't defined what your life actually costs to live fully, That's one of the first things because sometimes we just don't know where we're going to. And so, the very reason I created something called the Lifestyle Calculator, and it's going to allow you to put some numbers in, look at inflation, look at some things, and then spit out what your lifestyle might cost. And we'll get it to you for free. Just go to melabraham.com/lifestyle and grab it, play around with it, see what comes of it. All right. Type 3, the sleepwalker. Mm. Mm-mm. This sleepwalker, this is a sneaky one because from the outside they look completely fine. They have the balance. The contributions are happening. They're probably getting the match. And if you looked at their statement, you'd think, okay, this person has it together. But here's the thing about sleepwalkers. The autopilot is on. And nobody's actually flying the plane. And being honest with you, I've been this person. At one point, my life, uh, was kind of handed over. My financial life was handed over to an advisor that I had, a person I trusted. I knew him from college. They knew what they were doing and that was their job. So, I stopped paying attention, at least close attention. And then an investment that he put me in went bad, and I had to sit with that. Not just the loss itself, but more importantly, my role in it. Because the truth was, if I had understood the investment the way I understood it after I lost the money, I would have never jumped into the investment in the first place. I'm a CPA. I should have known better, but I didn't. Because you know what? As an accountant, they taught me how to count the money. They didn't teach me how to grow or keep the money. That's something I had to learn on my own. See, that's the sleepwalker at work. Not because they didn't care, but because nothing has gone wrong yet. The balance looks okay. The contributions are happening. So why dig deeper? Why ruffle feathers? Here's how you know if this is you. You're in the same allocation you picked when you first enrolled in your 401. You haven't rebalanced your portfolios. Ever, or in years. You don't take time to look at the funds you might be in, the expense ratios on the funds to see, hey, what am I actually paying? And you've never asked whether the investments you're in still make sense for your age and stage and timeline today. The thing is that if you dumped all your cash, all your investments today, would you buy these same ones back? And if the answer is no, then we probably may not be— want to be in it now. But here's the one thing that really matters. You have no decumulation plan. You have no plan to use it. So, you know how to accumulate it because you've been doing that. You've been building it. You've been investing. But you've never seriously thought about how you're going to actually use it and enjoy the money in retirement. So how do you draw it down? In what order? What's the tax strategy look like on the way out? See, the sleepwalker's wake-up call usually comes one of two ways. Either, like with me, something goes wrong. An investment loss, something like that, a market drop that hits harder than you expected. An advisor, maybe, that the relationship doesn't hold up under scrutiny. Or something changes. A health scare, a loss, a divorce, a moment where you look up from the work and realize that you've been focused and so focused on getting somewhere that you never checked whether you're actually heading in the right direction. See, the sleepwalker doesn't need to panic. They need to wake up and take the wheel. That's the game. So, let's talk about the person who's wide awake, doing everything right, but still can't shake the feeling that it's not enough. Type 4, the Optimizer. This is really an important one because I see this a lot and I have felt it myself. The Optimizer is probably the most common type among all the people that might be watching this or listening to this because they're getting the full employer match. They probably understand everything and they're maxing the contributions. They have the spreadsheet. They're tracking it in an app or something. They're actually using it. They read the content. They know the rules. They're playing the game. They know the contribution limits and they know the difference between a traditional 401 and a Roth. See, they're doing everything right. And yet somehow they still feel behind. That feeling doesn't make sense on paper because they can look at it. But it's absolutely real in their world, in their mind, in their heart, in their soul. And here's where it comes from. Part of it is what I call the great unknown. There's all these questions that we don't know that impact the plan, impact our finances. Like, how long am I going to live? What if there's a major market downturn right before I retired? That happened to my dad. What if healthcare costs are more than I projected? What if inflation does something that nobody really thought about? See, these are real questions. And the honest answer is we don't know. We can't know. Some of these things you just can't control. Even if you did know, I can't control the market. I can't control the economy. I can't control inflation. But trying to perfectly predict your retirement math is a little like calculating exactly how much traffic you'll hit on the road trip. That you haven't taken yet. See, you can make an estimate, but then life happens and oops. That's where the optimizer misses in all that anxiety. The goal isn't to eliminate the unknowns. The goal is to build a plan that survives them. See, when I work with clients on a real wealth plan, when I do my Money Machine Master Plans with them, we stress test it. We throw scenarios at it. We do things where we say, what happens if the market drops? 25%. What if I live 10 years longer than I projected? What if there's an economic downturn that lasts for longer than we thought? Not because we expect all of those things to happen, but because a plan that only works when the planets line up isn't a plan, it's a wish. So stop trying to achieve certain certainty on the uncontrollable. Start building resilience in the controllables. That's a completely different goal, and, and it's fully achievable. And then there's the comparison trap. See, the optimizer is watching what other people have and reading about someone who retired at 45, seeing a number on social media, feeling like that number is, is the right number, and their number is somehow smaller. See, measuring themselves against benchmarks that have nothing to do with the life that they're actually trying to build. Comparison is the enemy of enough. And enough is what you're actually looking for. Here's what I want the optimizer to understand. You don't have a math problem. See, the optimizer has a destination problem. You're running hard without a finish line. And without a finish line, no amount of running ever feels like it's enough. Define the life. Let the math serve the vision. And that's how the behind feeling finally, finally goes away. That's what it did for me when I finally defined the vision. And I've changed the vision many times, which changed the math, but I controlled the controllables. All right, 4 types down. Now, let's talk about the person who's built the most and has the most at stake. Type 5, The Architect. The Architect's been at this for a long time. They have a high balance. They have a long contribution history. They do the things that probably works with a financial advisor. They know their number. They know their plan. They got the plan. They've stress-tested it and it's getting them exactly where they wanted to go. The problem is where they're heading. See, let me go back to that couple I told you about. Decades of disciplined savings, getting the match, following the ladder, building the number, and they got there. And then within months of retiring, they were fighting more than they ever had. Not about money, but about purpose, about identity, about what the next chapter of their life was even for. Because they spent 30 years building towards a number and nobody had had ever asked them, what's the, uh, the number actually for? That, that's the architect. See, to me, here's how you know if this is you. You have a plan, but the plan is built around hitting a target, not designing a life. You, you haven't had a real conversation with yourself or with your partner about what does this retirement look like. What do you do on a Tuesday morning when there's no calendar to fill. What gives you purpose when the career identity is gone? What does your ideal week actually look like? And what are you willing to let go of to get there? See, without that conversation, you'll keep driving harder and longer toward a finish line that you never drew. The Architect has a GPS with absolutely nothing entered into the destination field. They've been literally flooring it for 25 years wondering why the arrival screen just never shows up. That's the game that they're playing. But here's what I find fascinating about The Architect. Once you help them get genuinely clear on their life that they're building, Hm, they move fast. See, Achievers achieve. Those are the ones that do that. The Architects, they are the ones that do that. When they understand what winning actually looks like, they adjust the scoreboard. They redesign the plan around the life instead of the number. And the resistance isn't in the changing. The resistance is in the slowing down. Because slowing down long enough to ask the question, what do I actually want? It feels unproductive to someone, especially someone who's been executing at a high level for decades. But that conversation is the most productive thing an architect can do right now. So what do you want? What does your partner want? What do you want together? What does a fully expressed life look like for you? Not for your LinkedIn profile, Not for your peers, but for you. Answer those questions first, then let the math serve the vision, not the other way around. 5 types, and every single one of them is on the same journey, just at different places on the road. Here's the thing, I want to leave you with this. The avoider, the late starter, the sleepwalker, the optimizer, the architect, every single one of them is building towards the same thing. And it isn't a number. It's a life that's fully expressed. It's waking up on a Tuesday morning without a low-grade financial anxiety headache that's going on that's been running quietly in the background for years. It's having freedom to say yes to the things that matter, no to the things that don't, without doing the math first. It's sitting across from the people you actually loved, fully present, not mentally calculating whether you can afford to be there. That's what the 401 is for. Not the number, but the life. See, I think about that couple sometimes and the ones that fought their way through the transition who had to slow down to get honest finally and what they each wanted before the money had really any meaning. They got there and they watched that shift. And watching the money go from scoreboard to tool or paintbrush, as I call it, for life, a life that they actually designed together. That's exactly why I do this work. See, the 401 is not the destination, it's the vehicle. And now you know what kind of driver you are. So, here's my question for you. Which type are you? Not which type do you want to be? Which one did you actually see yourself in today? Because That's where we start. Not with judgment, not with shame, but just with honesty. And from that honesty, we can build something, build something real. Start where you're at, build with what you have, and make sure that what you're building is pointing towards the life that you actually want. Because earning more isn't gonna make you free. That money machine does. Here's the thing. We build wealth not because we want the wealth, but because we want the life. The money was never the goal. The life is. I hope that this landed for you. And if it did, do me a favor, share it with someone who needs to hear it. A friend, a partner, someone you know is sitting in one of those 5 types right now. And while you're at it, man, hit the thumbs up and subscribe. It lets the algorithm know and it lets me know that what we're doing Matters. And yeah, it warms my heart too. So I can't wait to see you in the next one. I can't wait to see you on your journey to financial freedom. And in the meantime, if you have questions or comments or anything, leave them below. Send me a DM. I love having conversations with, with people just like you. All right, until I get a chance to— thank you for listening to the Affluent Entrepreneur Show with me, your host, Mel Abraham. If you want If you want to achieve financial liberation, to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to MelAbraham.com/group, and I'll see you there. And that's it for this episode of Building Your Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you. Here's what I'd love for you to do. If you do me a favor, go to Apple Podcasts or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people, because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.