Currently, record Americans save $1 million in 401(k)s, but probably less than you think
The 401(k) is an employer-funded retirement program with tax benefits and is one of the most popular ways Americans can do in a golden year.
According to the latest data from the Investment Company Institute, they generally hold nearly $9 trillion in assets of 70 million participants (active and retired).
According to a recent Fidelity report, the average balance of these accounts is $132,300, with retirement plan providers analyzing 24.4 million 401(k) plan participants’ third-quarter 2024 data. Among Americans aged 65-69, the average balance is the highest at $252,800.
So, you might find that few Americans have a balance of up to $1 million in a 401(k) workplace retirement plan. But those who have reached this milestone undoubtedly worked hard to get there. With proper planning, you can, too.
According to Fidelity, 544,000 people are 401(k) millionaires. When you consider the total number of 401(k) participants included in their study (244 million), that’s a small percentage of less than 3%.
But, this number is so small. Building wealth for retirement takes time and time. And if you don’t start earlier, you may be really hard to catch up.
Many people wait until they are older to start saving for retirement. It’s easy to understand why.
It’s hard to set aside funds for retirement when you work hard to deal with childcare expenses or new mortgages. Then, once your kids grow up and go to college, you may face high tuition fees in the process of helping.
A 2024 AARP study found that 20% of Americans aged 50 and older have no retirement savings. But if you reach that age without setting aside any money for your senior year, your chances of reaching $1 million may be slim.
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People who retire with $1 million or more often start to work towards this milestone early in their careers. If your goal is to retire $1 million or more, one of the most important things you can do is start funding an IRA, 401(k) or another dedicated retirement account from a young age.
This doesn’t mean you have to start with a large monthly donation. Over time, even small contributions may go a long way. However, if you wait too long, you will miss out on compound interest returns in your retirement account for years. This may understand your hands.
Imagine that you intend to retire at 65, which is when Medicare qualifications usually begin, you will start funding an IRA or 401(k) at 25, giving yourself a 40-year investment window.
If you donate $420 to your retirement plan during this period and your portfolio yields 7% per year, which is a bit lower than the stock market average, then you’re just over $1 million.
But, be aware of what happens when you start saving this money by the age of 35. Assuming the monthly donations and returns are the same, you are looking for about $476,000.
In other words, in this specific example, waiting 10 years to start saving retirement, your senior year could cost more than $500,000. So, no matter what happens in the market, you have to start young and keep investing.
Experts recommend maintaining a diversified, balanced portfolio by growing older. If you are unsure how to shape the best retirement portfolio for your goals, seek help from a financial advisor.
It is best to take advantage of any free pension to get any free money you can get. In the 2024 Pioneer Report, 95% of its employer-sponsored retirement plans offer competitions.
Of course, another way to build retirement wealth is to live consistently under your means. According to Bank of America, in 2024, about 25% of U.S. families live on salary. If your regular expenses leave you without the room to fund your retirement account, it may be time to create a new budget and make some cuts.
Another important thing is putting retirement savings on the autopilot. The benefit of about 401(k) is that once you sign up, your account will automatically fund each payment period. But not everyone can use 401(k). And if you are limited to IRA only, you will get this salary deduction feature.
In this case, the best option is to automatically transfer the hit rate to the IRA every time. Putting the process on the autopilot can help you stay on track. This could lead to a situation where you retire with a name of $1 million or more.
This article provides information only and should not be construed as advice. It is without any warranty of any kind.
