A million dollars at retirement isn’t reserved for lottery winners or inventors. Through your employer’s 401(k) plan, steady saving and smart investing can get you there.
Millionaire. The very word conjures up thoughts of easy living, more than enough to pay bills, no money worries ever again. Well, that may be overstating what it means to be a millionaire, but still, who wouldn’t love to have a million dollars to their name? If you thought the only way to get that lifestyle was through winning the lottery or inventing the next great thing, Billshark wants you to know there’s a more tried-and-true way: through your employer’s 401(k) plan.
1 How 401(k) Millionaires Are Made
Impossible? Not for the 157,000 people who have done it so far. A small drop in the bucket of those who have 401(k) accounts, we’ll grant you, but as the old saying has it, if one person has done something, it’s not impossible. Last month, Fidelity Investments announced that the number of people with more than $1 million in their 401(k) accounts at Fidelity had increased to 157,000 at the end of the first quarter of this year. Another 148,000 had that much in a Fidelity IRA. In addition, 2,400 of those had a million dollars in both types of accounts.
And the hopeful news for the rest of us: The number of 401(k) millionaires had increased 45 percent over this time last year, The Washington Post reported. Fidelity, one of the largest administrators of workplace retirement accounts, said that most of these millionaires were in the Baby Boom cohort, who had saved for at least 30 years.
“I think the most important behavior is to start saving early,” Katie Taylor, Fidelity’s vice-president of thought leadership, told CNN.
The next is to be smart about what and how you’re saving. “There’s no doubt that many of Fidelity’s 401(k) millionaires have benefited from the market’s positive performance,” Jeanne Thompson, senior vice president for Fidelity, told The Post, “but they also exhibit many of the behaviors we recommend to make the most of your savings.” It takes time and discipline to achieve this goal, but once you’re there, you can breathe a lot more easily about your retirement.
2 Five Must-Have Saving Tips
1. Start early. The earlier you begin, the more you’ll have at retirement. It may be difficult when you’re just starting out to set aside money, but the beauty of the 401(k) is that you have it taken out of your pre-tax earnings, so not only are you saving on taxes, but you’ll never even see the money. Just pretend it’s part of all the other deductions that come out of your paycheck. In addition, you won’t be trying to play catch-up as you get closer to retirement.
2. Contribute the maximum. Pay yourself first is the cardinal rule. Be sure to contribute what you must to receive your employer match, then put in more if you can. For 2018, employees are allowed to contribute up to $18,500 a year (up to $24,500 if the worker is age 50 or older).
3. Add windfalls. When you receive bonuses, tax returns, unexpected legacies from relatives’ wills, or whatever, add them to your savings rather than spending it.
4. Invest wisely. If you’re starting young, you can afford to take more risks, so steer away from bonds in favor of stocks. And diversify your portfolio—that means not putting all your eggs in one basket, or in this case, one particular stock or type of stock. Index funds usually have lower management fees than those associated with actively managed funds. Do your homework when deciding how to allocate your money.
5. Ignore your nest egg. “Investors in 401(k)s need to be emotionally detached from these funds,” Robert Bilkie, president of Sigma Investment Counselors, told the Detroit Free Press. “They have to view them as assets that are virtually locked away from the outset and recognize that the value of their investments will fluctuate, sometimes painfully so.” That means resisting the temptation to switch out of stocks when the inevitable market declines occur. It also means not cashing out when you switch jobs, or taking out loans for any reason.
3 Keep Your Eye on the Prize
All these actions may seem difficult at first, but if you keep your eye on your long-term goal—a million dollars at retirement—they’ll eventually become a habit you can feel good about.
And don’t forget to let Billshark help you find extra savings on your bills.
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Frequently Asked Questions
How many people have become 401(k) millionaires?
Fidelity Investments announced that the number of people with more than $1 million in their 401(k) accounts at Fidelity had increased to 157,000 at the end of the first quarter. Another 148,000 had that much in a Fidelity IRA, and 2,400 had a million dollars in both types of accounts. The number of 401(k) millionaires had grown 45 percent over the prior year.
What is the single most important behavior to build a 401(k) million?
Fidelity’s Katie Taylor told CNN the most important behavior is to start saving early. The earlier you begin, the more you’ll have at retirement, and you won’t be trying to play catch-up as you get closer to retiring. Most of Fidelity’s 401(k) millionaires were Baby Boomers who had saved for at least 30 years.
How much could I contribute to my 401(k) in 2018?
For 2018, employees were allowed to contribute up to $18,500 a year, or up to $24,500 a year if the worker was age 50 or older. The cardinal rule is to pay yourself first: contribute at least enough to receive your employer match, then put in more if you can.
How should I invest my 401(k) when I’m young?
If you’re starting young, you can afford to take more risks, so steer away from bonds in favor of stocks. Diversify your portfolio rather than putting all your eggs in one stock. Index funds usually have lower management fees than actively managed funds, so do your homework when deciding how to allocate your money.
What mistakes should I avoid with my 401(k)?
Stay emotionally detached from these funds and view them as assets locked away from the outset, knowing their value will fluctuate. Resist the temptation to switch out of stocks when market declines occur, and avoid cashing out when you switch jobs or taking out loans for any reason.
