My American cousin retired with $1.75m. My pension earned 1% a year. What should I do?

Kim, a worker in his 40s, came away shaken after meeting his cousin Lee last month. Lee had just retired after 30 years at a US bank — and his retirement account balance alone stood at $1.3 million (1.75 billion won). He had become a millionaire at the moment of retirement.

What stunned Kim was that Lee had not chased big returns by picking individual stocks. He had simply made automatic, mechanical contributions to a target-date fund and an S&P 500 index fund — and somehow built that kind of wealth.

Kim's own pension, by contrast, had returned just 9 percent over the past decade — less than 1 percent a year on average. "When I joined the company, I just signed whatever they put in front of me and never looked at the account again — I was too busy," Kim said. "I was afraid that if I touched it, I might lose even the principal."

The "secret" Lee shared was the US 401(k). The term "401(k) millionaire" — referring to those who have accumulated more than $1 million through the plan — has become a cultural phenomenon in the United States. Kim went straight to his bank's private banker to ask how he could replicate that kind of growth in Korea. The answer was straightforward: set the right direction, build a structure you can stick with, and invest for long enough.

A: In a single phrase, it is a combination of statutory tax incentives and an automated long-term asset-allocation system. Under the US Internal Revenue Code, it is the defining defined-contribution pension plan offered by private-sector employers to their employees.

The 401(k) has several distinctive features. The first is the employer matching contribution. When a worker contributes a set percentage of their salary, the employer adds a further contribution on top. On average, employees contribute about 7.7 percent of their pay, and employers match roughly 4.3 percent.

This gives participants an immediate sense of nearly 60 percent return on their investment, creating a powerful psychological incentive to keep contributing even through market volatility.

The second feature is the Qualified Default Investment Alternative, or QDIA, and the automatic enrollment of contributions into target-date funds. In the past, American workers faced the same problem seen in Korea today — employees left their retirement savings sitting in cash-like instruments because they did not know how to invest them. To fix this, Congress passed the Pension Protection Act of 2006 and introduced the QDIA framework.

The US Department of Labor approved only performance-based assets capable of generating long-term returns — such as target-date funds and balanced funds — as QDIA-eligible investments. Principal-guaranteed products like fixed deposits were disqualified entirely. As a result, more than 90 percent of new 401(k) contributions now flow automatically into target-date funds.

The third feature is automatic enrollment under the Secure Act 2.0. Starting in 2025, employees at workplaces that newly establish a defined-contribution plan such as a 401(k) are automatically enrolled. Initial employer contributions can be set to automatically increase to between 3 and 10 percent of an employee's wages, then rise by 1 percentage point each year, up to a maximum of 15 percent.

A: According to Fidelity, the number of 401(k) account holders with balances exceeding $1 million reached 645,000 at the end of the first quarter of this year. That was down 3 percent quarter-on-quarter but up 26 percent from the same period a year earlier.

The 401(k) millionaire phenomenon is not simply a story about a lucky few Americans. It is a victory of the system — the product of US financial markets and the institutional framework built around them. In Korea, the reality looks very different: more than 80 percent of pension participants leave their accounts parked in principal-guaranteed products such as fixed deposits.

According to the government's "2025 Retirement Pension and Pension Savings Investment White Paper," 75.4 percent of the 501.4 trillion won ($363 billion) in total retirement pension assets as of end-2025 sits idle in principal-guaranteed products earning just 1 to 2 percent a year. ETFs and other performance-based products account for only 24.6 percent.

The message in those numbers is unambiguous. Leaving retirement assets in fixed deposits does not safely protect your principal — it guarantees a steady erosion of real purchasing power, as returns fail to keep pace with inflation and rising asset prices.

A: That cuts right to the heart of the matter. Korea's default option system requires participants to manually designate their option in advance, and principal-guaranteed fixed deposits are included among the choices in the conservative portfolio tier. Many people who fear losing their principal end up designating even their default option as a principal-guaranteed product. The consequence: as of end-2025, 85.4 percent of the 53.3 trillion won held under the default option system is locked in deposits earning around 2.6 percent a year. This structural flaw is precisely why Korea's pension system has failed to grow as explosively as the US 401(k).

A: Every investor feels that fear. But long-term pension management has a powerful secret weapon for turning volatility into profit — unit accumulation. In ordinary stock investing, the goal is to lower your average purchase price or time the market to sell high. Long-term pension investing is different: what matters is accumulating as many units as possible. Funds and ETFs are traded in unit quantities. Daily prices fluctuate, but the number of units you have bought keeps growing.

Consider this example: you automatically invest 500,000 won in an ETF every month without fail. When prices are rising, the unit price is higher, so the same 500,000 won buys fewer units. When prices are falling, you can buy two or three times as many units for the same amount. For the average investor, a falling market means fear of losses — but for a pension participant making regular monthly contributions, a downturn is a golden opportunity to accumulate large quantities of quality assets at bargain prices.

When the market eventually recovers and enters a new upswing, the large number of units accumulated cheaply during the downturn get multiplied by the recovery rate — and the total value surges. The secret behind every 401(k) millionaire is ultimately the same: they kept buying every time the market crashed.

A: The real nature of risk is not loss itself — it is that a large enough loss pushes people into bad decisions. What a pension portfolio managed over 30 years needs is not the highest possible return, but a structure that will not collapse.

You cannot replicate the US 401(k) perfectly, but you can get reasonably close. For readers in their 30s, here is a three-step unit-accumulation plan.

Take 70 percent of your existing balance — currently sitting 100 percent in fixed deposits — and allocate it to a TDF2050, a target-date fund set to mature around your retirement year of 2050. With more than 20 years until retirement, a TDF2050 carries a high initial equity weighting that lets you steadily build up your unit count. Put the remaining 30 percent into products that track major US indices — S&P 500 or NASDAQ 100 index funds or ETFs.

Next, replace your existing conservative default option with a "neutral" or "aggressive" default option built around high-quality funds such as TDFs. That way, even if your schedule is too busy to issue investment instructions, your contributions will automatically flow into growth assets and keep generating returns.

It is equally important to set up an automatic purchase system for the retirement contributions deposited each month. Register automatic buy instructions for both the DC pension contributions your employer deposits monthly or annually and any additional personal contributions you make to your individual retirement pension account for tax-deduction purposes. The goal is to configure the system so that every incoming deposit mechanically buys TDF2050 units and US index ETFs, regardless of market conditions.

The ordinary American workers who became millionaires in retirement through the 401(k) did not do so through brilliant investing. They placed their accounts within the retirement pension framework, loaded them onto a quality asset-allocation system of TDFs and index funds, refused to be rattled by short-term volatility or the terror of a market crash, and mechanically accumulated units over the long term. Now is the time to open your own DC or individual retirement pension account, wake up the assets sleeping in principal-guaranteed deposits, and shift them into a TDF and global asset-allocation portfolio.

By Han Yu-jin, deputy manager at Woori Bank