During my free financial review of my rollover IRA, I was feeling pretty good about how far it had come. Back when I retired from finance in April 2012, I had about $300,000 in my 401(k). After leaving, I rolled it into an IRA and invested in index ETFs and individual stocks. Since then, it has grown to over $1.5 million.
$1.5 million in a single retirement account at age 48 is nothing to sneeze at. If I were 62 with this balance, I could withdraw $60,000 – $75,000 a year and live comfortably, especially when combined with roughly $36,000 a year in Social Security benefits. We’ve all got permission to live it up in retirement now that the recommended safe withdrawal rate has been revised up to 5%.
Given that I haven’t contributed a single dollar to this IRA since April 2012, it’s a great case study in the power of long-term investing. But it’s also a humbling reminder that many of us retail or active investors aren’t as skilled as we like to think.
Because truth be told, I thought $1.58 million was an impressive sum after starting from zero in 1999 and contributing nothing for the past 13+ years. Then I did the math.
Not as Good an Investor as I Thought I Was
After running the numbers on my average return since 2012, I realized I had actually underperformed the market. My IRA’s compound annual growth rate (CAGR, since I didn't make any additional investments or withdrawals) was 14.2%, which I initially felt pretty good about. After all, the S&P 500’s historical average total return since 1926 is around 10%.
But when I asked ChatGPT to calculate the S&P 500’s actual average return during the same period (2012 – 2025, assuming a 18% return in 2025), it came out to 15.5%. In other words, if we trust ChatGPT (check section at the end of the post), my IRA underperformed the index by roughly 1.3% per year for 13 years. That’s a meaningful gap. A 1.3% return on a $1.5 million portfolio equals about $20,000!
The Potential Sources Of Underperformance
The underperformance made me wonder where I went wrong, especially since I thought I was fairly aggressive with about 50% of my portfolio in tech and communication stocks on average. Maybe that aggressiveness backfired. 2022 was brutal for growth stocks (-26% for my portfolio), and 2018 wasn’t great either.
It’s also possible I made some ill-timed trades more than two years ago, which I can’t review because Citibank’s trading platform only provides two years of transaction history for some reason. Maybe I derisked in 2022 in my IRA instead of buying the dip, like I did in my taxable account. I bought aggressively in March and April 2025 because I had just sold my house and was flush with cash.
Or perhaps I wasn’t always 99% in equities since 2012. I might have held some bonds between 2012 and 2020 or was overweight cash. After leaving my day job, it was rational to dial back risk since I no longer had steady active income. But I don’t think I did because I had a hedge with structured notes in my main taxable portfolio.
Comparing a mixed portfolio of stocks and bonds to a pure S&P 500 index isn't quite fair. Yet it’s hard not to feel a twinge of disappointment when all you see is long-term underperformance, even if the lower volatility helped me sleep better during downturns.
This inability to remember exact details is one reason it’s so valuable to have annual financial checkups and write down your findings. Alternatively, speak to a financial professional who can stay on top of everything for you. Over time, we humans have a habit of practicing revisionist history, convincing ourselves that things were better than they actually were.
Poor 401(k) Returns From 1999 – 2012
Then I wondered something else: given that I started working in July 1999 and retired from finance in April 2012, how much in total 401(k) contributions had I actually made? I’ve always believed in maxing out your 401(k) for as long as you’re employed. After I got my first full year's paycheck, that’s exactly what I did from 2000 through 2011.
I don’t remember how much I contributed in 1999, my first partial year of work, but let’s assume around $3,000. Then, let’s say I contributed $5,000 in 2012 before my three months of WARN Act pay ended in July.
For those negotiating a severance package, it’s important to understand that many employees confuse severance pay with WARN Act pay. WARN Act pay is legally required compensation for employees at companies with over 100 workers, while severance is discretionary and paid on top of WARN Act pay.
Total Employee 401(k) Contributions from 1999 – 2012
Here's my estimated total 401(k) contributions during my 13-year finance career.
| Year | 401(k) Limit | Your Contribution |
|---|---|---|
| 1999 | $10,000 | $3,000 |
| 2000 | $10,500 | $10,500 |
| 2001 | $10,500 | $10,500 |
| 2002 | $11,000 | $11,000 |
| 2003 | $12,000 | $12,000 |
| 2004 | $13,000 | $13,000 |
| 2005 | $14,000 | $14,000 |
| 2006 | $15,000 | $15,000 |
| 2007 | $15,500 | $15,500 |
| 2008 | $15,500 | $15,500 |
| 2009 | $16,500 | $16,500 |
| 2010 | $16,500 | $16,500 |
| 2011 | $16,500 | $16,500 |
| 2012 | $17,000 | $5,000 |
In total, I contributed $184,000 to my 401(k) during my 13-year work history, which means about $116,000 came from returns. I thought this wasn't bad given the dotcom bubble burst in March 2000 and then we had the global financial crisis from 2008-2009, leading to a lost decade for stocks.
My internal rate of return (IRR, since I contributed each year) was about 6% given the contributions were spread out over 13 years.
The Returns Are Actually Worse
But then I remembered another element of my 401(k)'s growth, which was Goldman Sachs and Credit Suisee's 401(k) matching policy.
Let's say my firms matched/contributed $5,000 a year to my 401(k) from 2000 through 2011 on average. That would equal $60,000 in contributions for a combined total 401(k) contribution of $244,000 ($184,000 by me and $60,000 by my firm). If so, I only had about $56,000 in equity gains from my 401(k) during my time working for an IRR of only 3.3%!
Could my returns really be that bad? Maybe I'm overestimating my average 401(k) match, and it was closer to $3,000 a year. If so, my 401(k)'s IRR is more like 4%. Still, the returns are quite abysmal even with the 200 dotcom bust and 2008 global financial crisis.
The final explanation may be that I left my finance career in 2012 with more than $300,000 in my 401(k). Maybe it was closer to $350,000, which would boost my 401(k)'s IRR from 1999 – 2012, but lower my IRA's IRR from 2012 to today. However, without regular financial checkups and record keeping, it's hard to know for sure.
Investment Contributions Matter Most Early On
In the first 10 to 15 years of investing, your contributions matter far more than your returns. This is the grind phase, where every dollar you save builds the foundation for future wealth.
As I wrote in my USA TODAY bestseller, Millionaire Milestones, your goal early on is to save and invest like crazy until you reach the $250,000 investment threshold. Make those sacrifices while you're young! Once you do, your annual investment returns often start surpassing your maximum employee contribution. That’s when the compounding flywheel really kicks in, and becoming a millionaire becomes almost inevitable.
When you reach your Minimum Investment Threshold, you earn the right to relax a little at work. Spend some time calculating yours, it’s one of the most empowering numbers in personal finance.
Learning From The Investing Mistakes I Made As A Young Man
On one hand, you could argue I’m not a good active investor when it comes to my 401(k) and IRA. In the early years, I made the classic mistake of investing in high-fee, actively managed mutual funds that consistently underperformed their benchmarks. But to be fair, those were the limited options available in my employer’s 401(k) plan.
I also know I traded in and out of stocks far too often in my 20s and early 30s. It got so bad that the Managing Director of the International department in New York flew out to San Francisco to sit me down for an intervention. He told me to focus or risk my career.
On the other hand, maybe I am a good active investor, just in a different way. I actively contributed the maximum to my 401(k) as soon as I earned a full year’s paycheck. Then I periodically rebalanced my IRA to keep my risk exposure aligned with my stage in life.
I wouldn’t have been 99% in equities since 2020, at least, if I didn’t have other investments and enough passive income to live comfortably. In that sense, I was investing based on my unique situation, not blindly chasing returns. Then I actively write multiple posts about my findings to try and optimize.
Try Maxing Out Your 401(k) Every Year
What matters most is that I consistently controlled what I could control – maxing out my 401(k), capturing every employer match, rolling my funds into a low-cost IRA, and later contributing to a Solo 401(k) and SEP-IRA once I left traditional work. Please try to max out your 401(k) every year as well. You'll be amazed at how much it will grow to after 10 years.
As a personal finance writer, I’m also pleased that I now have 26 years of 401(k) contribution experience to back up my recommended 401(k) by age guide below. I'm confident most people who contribute at least $10,000 a year to their 401(k) for 30 years will have over $1 million.
The Urge to Keep Analyzing Other Retirement Portfolios
After my free Empower financial consultation for my IRA, I immediately felt the urge to get another review for my Solo 401(k) and SEP-IRA. So I dove into my Solo 401(k), because I stubbornly refuse to believe I underperformed the S&P 500 across the board all those years.
Here’s the Solo 401(k) I opened in 2014, once I started consulting part-time for Empower and a couple other startups, and driving for Uber. I figured why not save more for traditional retirement and shield some consulting and side hustle income from taxes. Over the past 10 years, I’ve contributed $166,570 and earned $322,639 in gains.
That works out to an IRR of 22.5% – closer to the performance I had imagined. But whoah, look at that 32% hammering in 2022 thanks to my highly concentrated position in growth stocks. Sadly, if I had this type of performance for my IRA since 1999, it would be over $4 million today.
The main difference in performance comes down to my even more aggressive positions in the Solo 401(k), largely because of its smaller size. Since I treated all the income from consulting as “bonus retirement money,” I decided to go even heavier than 70% in tech.
So for any retirees or workers who think doing a side hustle is beneath them, stop thinking that way! Every bit of extra income adds up, especially if you consistently invest the proceeds.
ChatGPT / AI Was Wrong About Return Assumptions!
After reviewing my Solo 401(k) and SEP-IRA performance – both of which have nearly identical holdings – I went back and recalculated the S&P 500’s compound annual growth rate (CAGR) from the beginning of 2012 through 2024, assuming an 18% return for 2025. I just didn’t believe ChatGPT’s original answer that the S&P 500 CAGR was 15.5%. That felt too high.
From the beginning of 2012 to the end of 2024, the S&P 500 total return (with dividends reinvested) is +367.2%, or a 4.67x multiplier. That corresponds to a 12.6% CAGR over 13 years (2012–2024).
If 2025 ends up +18%, the cumulative multiplier becomes 4.672 × 1.18 = 5.515. Therefore, the 14-year average annual total return from 2012 through 2025 would be about 12.5% per year, not 15.5%!
Then I asked Anthropic’s Claude the same question—what’s the S&P 500 CAGR from January 1, 2012 through 2025, assuming an 18% up year for 2025? It came back with 14%.
When I pressed it to double-check its work and explain the discrepancy versus ChatGPT’s 12.5% figure, Claude responded:
“My error was using only the price index returns instead of total returns (which include reinvested dividends), and I may have also made calculation errors.”
The first part of the answer doesn't make sense, because using total returns would make the CAGR higher, not lower. So when I pressed Claude again, it agreed with the 12.5% CAGR figure and simply said it was wrong in the previous answer!
Annual S&P 500 Total Returns (With Dividends Reinvested)
| Year | Return | Year | Return | |
|---|---|---|---|---|
| 2012 | +16.00% | 2019 | +31.49% | |
| 2013 | +32.39% | 2020 | +18.40% | |
| 2014 | +13.69% | 2021 | +28.71% | |
| 2015 | +1.38% | 2022 | -18.11% | |
| 2016 | +11.96% | 2023 | +26.29% | |
| 2017 | +21.83% | 2024 | +25.02% | |
| 2018 | -4.38% | 2025 | +18.00% (assumed) |
Calculating the CAGR Properly
Therefore, my ~14.2% CAGR in my rollover IRA from 2012 through 2025 actually outperformed the S&P 500 by 1.7% a year for 14 years.
That may not sound like much, but over 14 years, a 1.7% annual outperformance results in about 25% more total wealth, a strong compounding edge for an individual investor managing his own portfolio.
Please Stay on Top of Your Finances
This exercise reminded me that while large language models like ChatGPT and Claude can save time, they shouldn’t be blindly trusted for quantitative analysis. Always verify calculations manually or with a spreadsheet, especially when assessing long-term performance.
After all, the difference between a 12.5% and 15.5% annual return over 14 years is enormous – roughly a 60% difference in ending wealth.
My IRA will go a long way toward supporting a comfortable retirement lifestyle after age 60. None of it would have been possible without the simple, unglamorous habit of saving and investing consistently year after year.
You can’t always control your returns or your investment options, but you can control your effort and discipline. Over time, that’s exactly what leads to financial freedom.
If you haven’t done a deep-dive review of your investment portfolio(s) in the last 6-12 months, now is the time. You can tackle the analysis yourself or get a free financial analysis with Empower. You’ll uncover insights about your portfolio and your investing habits that you didn’t realize. Getting some help now could compound into much greater financial gains down the road.
Readers, how have your investment portfolios performed over the past 10 years? When was the last time you did a deep-dive review of your portfolio’s performance? And how did your actual results compare to what you thought they would be? Do you think you are a good investor?
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