The “it” in this case is saving enough in your workplace retirement plan to have a seven-digit account balance. You too, with enough time and consistency, can join the 401(k) millionaire’s club.
Fidelity Investments reported that for the third quarter of 2018, the number of people with $1 million or more in the employer plans it manages reached 187,400 — a jump of 41 percent from the 133,000 401(k) millionaires in the same quarter last year. This increase is nearly 10 times the 19,300 such savers it reported having a decade ago.
The number of IRA millionaires rose to 170,400, a 25 percent surge year over year, according to Fidelity, one of the country’s largest administrators of workplace retirement accounts.
Put in perspective, 401(k) millionaires reported by Fidelity are a tiny percentage — about 1.1 percent — of workers who contribute to their employer-based plan. Still, the growth of this group is impressive 10 years after the financial crisis and during a time when the current stock market has led to some significant losses — on paper at least — for many people.
“What we’ve seen following the financial crisis is that most of the people who save in 401(k) retirement plan stayed the course,” said Katie Taylor, vice president of Thought Leadership at Fidelity. “And the rate at which people are saving continues to go up.”
Workers will be able to contribute up to $19,000 each year to a workplace plan such as a 401(k) or the federal government’s Thrift Savings Plan starting in 2019. If you’re over 50, there’s a catch-up provision that allows you to put away an extra $6,000 for a total contribution of up to $25,000 to an employer-sponsored retirement plan.
Also hitting an all-time high was the average balance for a 401(k), which reached $106,500, up from $104,300 at the end of 2017. Since 2008, the average balance has skyrocketed 87 percent from $56,900. The average 403(b) account balance hit a record $85,500. The average IRA balance increased to $111,000, up 4 percent, according to Fidelity.
And people are contributing a higher percentage of their pay. The average employee 401(k) contribution rate reached 8.7 percent for the third quarter this year.
Wondering how some folks have reached this milestone?
The key factors: time, consistency, investing in equities and not panicking when the stock market takes a downturn.
People have been investing most of their working life, and they didn’t leave money on the table, Taylor said.
“They’re saving either at or beyond the 15 percent that we would recommend that people save throughout their career and that can be a combination of what they’re putting in from their paycheck as well as any matching contribution from their employer,” she said.
Even as they bought a home or had children, they faithfully kept saving. Most importantly, they didn’t let bear markets scare them into selling.
“Even though the market goes up and down equities historically have outperformed other types of investments,” Taylor said. “And when you think about a 401(k), especially if you’re starting earlier in your career, you really do have time on your side.”
By the way, the millionaires aren’t just people earning six-figure salaries.
“My husband and I have both achieved millionaire status, despite spending most of our careers at public universities and earning relatively modest salaries as a professor and a social worker,” wrote Virginia from New York. “The key is to start participating in the retirement savings plan in your first job and maximize contributions whenever possible.”
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