These days, it’s not uncommon to hear stories of individuals achieving millionaire status through their 401(k) retirement savings plans. In fact, Vanguard’s first annual How America Saves report found that features like automatic enrollment and automatic annual increases have led to broad increases in 401(k) participation rates, a first and necessary step in pursuing a $1 million-plus balance prior to retirement.
According to data from Fidelity, the number of 401(k) millionaires jumped nearly 30% in the second quarter of 2023 compared to the same period in the previous year. This increasing trend signifies that more individuals are prioritizing their retirement savings and making smart investment decisions.
To enter the 401(k)-millionaire club, it’s crucial to adopt the right mindset. The journey to amass a million dollars in your 401(k) is not a sprint but a marathon. It requires persistence, patience, and discipline. You need to commit to regular contributions, take advantage of employer matches, and resist the temptation to withdraw funds prematurely.
Setting Your Retirement Goals
According to a survey by Bankrate, more than a third of Gen Zers and millennials believe they would need over a million dollars for a comfortable retirement. While this may seem like a daunting figure, especially for those in their 20s and 30s, it is within reach for many with the right savings and investing strategies.
If you aim to save over $1 million for retirement, the amount you need to save each month will … [+]
If you aim to save over $1 million for retirement, the amount you need to save each month will depend on your age, the annual rate of return on your investments, and your desired retirement age. For instance, if you start at age 25 and aim for a 7% annual rate of return, you would need to save approximately $666 per month to retire at 60 with $1.2 million, according to a CNBC report.
The same report says approximately 25% of millennial and Gen Z workers and nearly 30% of baby boomers are unsure about how much they need to save for a comfortable retirement. If you’re in this boat, consider using a retirement calculator, such as Vanguard’s free retirement income calculator, to estimate how much you need to maintain your lifestyle after retiring.
Despite the uncertainty surrounding retirement savings, most workers are optimistic about reaching their retirement savings goals. Bankrate’s survey found that around 62% of millennials and 58% of Gen Zers are confident about meeting their retirement savings objectives.
Determining Your Savings Rate
Your savings rate is the percentage of your pre-tax income that you put toward a retirement savings account such as a 401(k) or a Roth IRA. Forbes contributor David Rae ran a breakdown of the approximate monthly contributions needed, based on an 8% return, to reach a $1 million account balance. “Forty-eight years requires about $170 per month. Thirty years requires about $735 per month. Twenty years requires about $1,821 per month. Ten years would require about $5,755 per month. (Which is above the maximum 401(k) contribution limits unless you are self-employed and older than age 50),” he writes.
It’s okay to start small and gradually increase your contributions over time. The key is to make progress, even if it’s slow. Becoming a 401(k) millionaire may seem like a daunting goal, but with the right strategies and a disciplined approach, it’s an achievable dream. Remember, the journey to 401(k) millionaire status is a marathon, not a sprint. Stay consistent, make smart investment decisions, and keep your eyes on the prize. The 401(k)-millionaire club is waiting for you!
Brian Menickella is the founder and managing partner at Beacon Financial Services, a broad-based financial advisory firm based in Wayne, PA.
Securities and Advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice.