It can be done.
The "it" in this case saves enough in your company retirement plan to have a seven-figure account balance. You too can join the 401 (k) millionaire club with enough time and consistency.
Fidelity Investments reported that for the third quarter of 2018, the number of people with $ 1 million or more in their employer plans was 187,400 – an increase of 41 percent over the previous year. This increase is nearly ten times the 19,300 savers reported a decade ago.
Meanwhile, the number of IRA millionaires has risen to 170,400, an increase of 25 percent year-on-year, according to Fidelity, one of the country's largest pastors for occupational pensions.
In perspective, 401 (k) millionaires reported by Fidelity are a tiny percentage (about 1.1 percent) of employees contributing to their employer-based plan. However, 10 years after the financial crisis and at a time when the stock market has caused significant losses for many people, at least on paper, the growth of this group is impressive.
"What we've seen since the financial crisis is that most of the people who save 401 (k) in the plan have abandoned the course," said Katie Taylor, vice president of thought leadership at Fidelity. "And the rate at which people save continues to increase."
Workers will be able to contribute up to $ 19,000 per year to a work plan such as a 401 (k) or the Federal Government's Thrift Savings Plan from 2019. If you're over 50, there's a catch-up bonus that allows you to spend an additional $ 6,000 for a total contribution of up to $ 25,000 toward an employer-sponsored retirement plan.
An all-time high also hit the average 401 (k) s balance, which stood at $ 106,500 from $ 104,300 at the end of 2017. Since 2008, the average balance has risen 87 percent from $ 56,900. The average account balance of 403 (b) reached a record $ 85,500. Average IRA account balance increased 4 percent to $ 111,000, according to Fidelity.
In addition, people contribute a higher percentage of their salary. The average contribution rate of employees 401 (k) reached 8.7 percent in the third quarter of this year.
Here's some additional insight from Fidelity's analysis of the 22 million 401 (k) and 403 (b) savers across their entire pension platform.
- Among the participants who had been in their 401 (k) plan for 15 years, the average balance was $ 400,300.
- Workers saving for 10 years had an average account balance of $ 305,400.
- Young adults save too. Millennials who have been investing in their employer plan for five years had an average account balance of $ 82,000.
But back to the 401 (k) millionaires. You wonder how some people have reached this milestone?
The key factors: time, consistency, investment in stocks and do not panic when the stock market is experiencing a downturn.
People have spent most of their working lives and they left no money on the table, Taylor said.
"You either save about 15% or more, which we would recommend people to save throughout their careers, which can be a combination of what they get from their paychecks and a corresponding contribution from their employer," said she said.
Even when they bought houses or had children, they faithfully saved. Most importantly, they did not tempt the bear markets – a time of falling stock prices – to scare them up for sale.
"Even as the market moves up and down, equities have outperformed other assets in the past," said Taylor. "And if you think of a 401 (k), especially if you start earlier in your career, you really have time on your side.
Incidentally, the millionaires are not just people earning six-figure salaries.
"My husband and I both achieved millionaire status, although we spent most of our careers at public universities and received relatively low salaries as a professor and social worker," Virginia wrote from New York. "The key is to participate in your first job on the retirement plan and, if possible, to maximize the contributions. Follow Warren Buffett's rules to live on 90 percent of your after-tax income and save at least 10 percent. "
A reader wrote that he reached the millionaire mark at the age of fifty. His strategy was to automatically increase his contribution.
"I increased my contributions by 1 percent each year until I reached the limit," he wrote. "Since I did not have the money as an income, I did not miss it."
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