4 Rules To Become a 401(k) Millionaire
How much money have you socked away in your 401(k)?
According to Fidelity, the average 401(k) balance is $104,000, a 6% increase from $97,700 over last year.
$104,000 is a good start, but it’s far from enough to finance a retirement that could last 20 years or more. Fortunately, the number of 401(k) millionaires is now at a record high.
Fidelity notes, there are 168,000 Americans with more than $1 million in their 401(k) plan. A record high.
Source: Fidelity, CNBC
Workers are waking up, and putting enough away to collect all of their company’s 401(k) match money, which is typically 50 cents on the dollar for the first 6% you sock away.
Today, the average 401(k) participant saves 6.7% of their earnings. This is up from 4% in 2008.
Now you’re probably wondering… How you can join these folks in the 401(k) millionaires club?
It’s easy if you follow these four simple rules:
Rule #1: Start as early as possible.
The magic of compounding is the key to becoming a 401(k) millionaire. The sooner you start, the faster you’ll become rich. Let’s do the math.
Someone who saves $500 a month for 30 years at 8% will accumulate $697,699. The same person with only 20 years of savings will accumulate $274,571. The writing’s on the wall.
Rule #2: Grab every penny of your company’s match.
As I mentioned above, most companies — an estimated 92% of them — will match 50 cents on every dollar that you put into your 401(k), up to a maximum of 6%. In simple terms, your 6% contribution jumps to 9% when you include the company match. Only a dummy would leave 3% of free cash on the table.
Rule #3: Invest aggressively until you hit 50.
The beauty of a 401(k) is that you’re in a long-term dollar cost average strategy. Whether the stock market goes up or down, you are buying stocks. By systematically investing in the stock market each month, you wring out most of the volatility in your investing. The $697,699 I mentioned above shrinks to just $474,349 if your average return drops from 8% to 6%.
As history shows, sticking to equities will not only make you richer, it will get you into millionaire status much quicker.
Rule #4: Get serious about saving after age 50.
In 2018, workers under the age of 50 can contribute up to $18,500 of their salary to a 401(k), but employees 50 and older can contribute an additional $6,000 in “catch-up” savings for a total of $24,500. You must take advantage of this.
Bottom line: There aren’t any shortcuts here. It takes years of consistent savings and diligent investing to get there. See below:
But by following these rules you could easily reach the ranks of a 401(k) millionaire.
As the old saying goes, time is money. Get started now!
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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