Becoming a 401(K) millionaire is possible. It’s not necessarily easy. However, more and more people are succeeding.
What is a 401(K) Millionaire?
If you’ve never heard of the time before then you might wonder exactly what it means to be a 401(K) millionaire. It isn’t complicated. In fact, it’s exactly as the name suggests. A 401(K) millionaire is someone who has at least $1 million in their retirement account.
The Number of 401(K) Millionaires Is on the Rise
According to CNBC, the number of 401(K) millionaires increased by 35% in the first quarter of 2019 (as compared to the previous year). The main reason for this is because of the large number of baby boomers who are hitting that seven figure mark. The average 401(K) millionaire is 60 years old.
How to Become a 401(K) Millionaire
If you want to become a 401(K) millionaire then you have to get a grip on your money immediately. The younger you are when you start setting that money aside, the more likely it is you’ll reach that seven figure retirement target. That said, here are some key tips that anyone can use to increase their 401(k) savings.
Max Out Your Contributions
The most important thing that you can do is to contribute as much as you’re allowed to contribute to your 401(k). Your allowed employee contribution amount changes from year to year. In 2019, you can contribute $19,000.
However, if you’re over the age of 50, then you’re allowed to contribute a little bit more so that you can “catch up.” In 2019, you’re allowed to contribute $6000 extra.
Remember that the numbers tend to increase every year so always check what the latest possibilities are.
Moreover, make sure that you’re maximizing employer contributions. Take advantage of any options you have at work for your employer to contribute up to the maximum amount. In 2019, the maximum employer contribution is $37,000. Go talk to HR today.
Make Smart Investments
When investing your money, it’s important to consider your age and how long it will be before you retire. If you’re young, then invest in equity-based mutual funds. They offer higher risk but bigger reward. Hang on through the ups and downs.
However, as you get older and approach retirement age, it’s time to switch to more conservative investments. That’s when you want to put more money into cash and bonds.
One smart option is to invest your 401(k) money into a target-date fund. You set the target retirement date. Then professionals manage your investments for you with that goal in mind. They’ll follow the same rules as above (riskier investments early on and more conservative ones later) so that you don’t have to worry about the details so much.
Don’t Count Yourself Out
You don’t have to be rich in order to become a 401(K) millionaire. Although it’s best if you start young, don’t count yourself out if you’re older. Even if you don’t reach that seven figure target, aiming to do so can help you maximize your retirement income.
Know What You Need to Save To Become a Retired Millionaire
Use a millionaire calculator in order to get a realistic picture of what it would take for you to have $1 million or more at retirement. You’ll enter:
- Current age
- Target retirement age
- Amount currently invested
- Savings per month
- Expected rate of return
- Expected inflation rate
This gives you your expected savings at retirement. However, you can play around with the “savings per month” number until your expected savings reaches $1 million. Then you know how much you need to save to reach that million mark. While this doesn’t specifically determine your 401(k) amount, it gives you a good idea of how much other savings you’ll have to add to your 401(k) to become a millionaire at retirement.