What a difference from February, when Fidelity noted that the stock market plunge of 2022
wiped out a third of 401(k) millionaires. Now, account balances in
401(k) plans are starting to soar again, the investment manager says.
For the most part, 401(k) millionaires don’t earn huge salaries. Brokerage and investment advisor Raymond James says people with hefty retirement balances are generally average workers who stick to a few basic principles.
These five habits can help you get to that magic million in your retirement account:
Start saving early. If it’s too late for you to start early, turn up that savings rate now. Don’t forget about stashing money in an IRA — hitting that $6,500 target ($7,500 if you’re 50 or older) can motivate you to boost your savings in other accounts.
Max out your contributions. In 2023, you can stash up to $22,500 — $30,000 if you’re 50 or older — in a 401(k). Successful savers generally save 10% to 15% of their income for retirement. If you’re saving less, turn up your contribution rate by a percent or two. You probably won’t feel the difference, but your account most certainly will.
Get that employer match. If your company offers a matching contribution, try to contribute the minimum required to earn it — even if you can’t max out your 401(k). It’s free money.
Choose the right asset allocation. It doesn’t pay to be completely risk-averse. Raymond James notes that the average 401(k) millionaire invested roughly 75% of their portfolio in growth-oriented investments such as equity mutual funds.
Don’t cash out early. Early withdrawals come with tax consequences and other penalties. Worst of all, you lose out on years of compounding interest. If you change jobs, roll your account balance into a new plan or into an IRA.
It’s never too late to beef up your retirement savings — you could be closer to the league of 401(k) millionaires than you think. For more, read Adam Hardy’s story.
— Jill Cornfield, deputy editor
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