A record number of Americans have become 401(k) millionaires, thanks to the booming stock market. As of the third quarter of 2024, the count of 401(k) millionaires stood at 544,000, up from 497,000 just three months prior, as reported by Fidelity Investments, a prominent provider of employer retirement plans. This figure pertains solely to Fidelity account holders. Additionally, the number of IRA millionaires with Fidelity hit a new high at 418,111.
While it’s a challenge for most Americans to amass a million dollars in their 401(k) or IRA accounts, the 544,000 figure represents slightly over 2% of all 401(k) participants at Fidelity. However, the significance of a million-dollar threshold varies among individuals, with many believing that more is needed for a comfortable retirement. Monica Dwyer, a certified financial planner, points out the allure and perceived difficulty of achieving the “millionaire” status in the U.S.
Fidelity emphasizes that not everyone needs to aim for 401(k) millionaire status, yet the firm includes this metric in its quarterly retirement reports for transparency. Mike Shamrell, VP of thought leadership at Fidelity, underscores the value of studying the habits of 401(k) millionaires, particularly for those aspiring to join their ranks. Typically, 401(k) millionaires are Gen Xers or Baby Boomers who have saved for an average of 26 years, with contributions exceeding 17% of their pre-tax income.
To foster the growth of future 401(k) millionaires, here are eight tips for achieving a seven-figure balance in your retirement account:
1. Enroll in a 401(k) early to kickstart your savings journey.
2. Aim to maximize your employer’s matching contributions, as they are essentially free money.
3. Strive to save at least 15% of your salary to bolster your retirement nest egg.
4. Consider automating a gradual increase in your 401(k) contributions each year.
5. If feasible, contribute the maximum allowed to your retirement accounts to accelerate wealth accumulation.
By adhering to these strategies and committing to consistent saving habits, individuals can work toward achieving their retirement goals and potentially reaching the coveted status of a 401(k) millionaire.
In 2024, the contribution limits for retirement savings are set at $7,000, with a generous bump to $8,000 for individuals aged 50 and above. For those enrolled in 401(k) plans, the maximum employee contribution stands at $23,000, increasing to $30,500 for individuals in the 50-and-over bracket. Looking ahead to 2025, these limits are poised to rise further, with additional “catch-up” provisions tailored for those aged 60 to 63.
The overarching advice from experts is clear: aspiring retirement savers should strive to maximize their 401(k) contributions. Financial guru Lazaroff emphasizes the importance of bolstering one’s retirement nest egg through diligent saving practices.
One common pitfall to avoid is cashing out a 401(k) prematurely when transitioning jobs. Research indicates that many workers succumb to this temptation, forfeiting substantial sums in potential compounded interest over time. Instead, experts endorse the strategic maneuver of “rolling over” one’s 401(k) either into an Individual Retirement Account (IRA) or a new 401(k) plan at their next place of employment.
In a progressive move, a collective of private retirement plan providers unveiled a collaborative effort in 2022 to enhance the “portability” of modest retirement accounts, aiming to streamline the transfer process for individuals navigating career changes.
During market downturns, the impulse to liquidate investments may arise out of fear. However, financial advisors caution against this knee-jerk reaction, advocating for a patient approach. While the value of a retirement portfolio may dip temporarily, the underlying assets – be they stocks or mutual funds – remain intact. Analogously, these assets are likened to hens that may slim down during lean periods but hold the promise of fattening up once more in the future.
A cardinal rule underscored by experts is to refrain from tapping into a 401(k) prematurely, given the punitive tax implications. Early withdrawals prior to age 59 ½ trigger an additional tax levy of 10%, effectively eroding a substantial portion of the withdrawn amount. Exceptions exist for specific circumstances like a first-time home purchase or emergency expenses; nonetheless, the overarching principle guiding 401(k) management is to preserve the funds until retirement beckons.
The narrative of the 401(k) millionaire serves as a beacon of hope for diligent savers. Fidelity’s data reveals that these individuals, on average, have diligently contributed to their retirement accounts for around 26 years. While this may seem daunting, the key lies in consistency and longevity. By initiating savings in one’s early twenties and maintaining the discipline through to retirement in the early sixties, a substantial nest egg can be amassed. A hypothetical scenario illustrates this prospect vividly: with a $50,000 salary, a 10% contribution to a 401(k), employer matching, compounded annual returns, and incremental raises, a seven-figure balance can be achieved by age 55.
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