Joining the ranks of the 401(k) millionaires is fairly attainable, but you'll need to be persistent, patient, and wise in your investment decisions to achieve your goals. According to data released by Fidelity Investments in the fourth quarter of 2019, the number of 401(k) millionaires has continued to rise, hitting historic levels. A record amount of 233,000 persons had $1 million or more in their 401(k) in the fourth quarter, increasing 200,000 in the previous quarter. Although the COVID-19 Pandemic would almost definitely influence 401(k) savings, the general trend has increased over time.
1. Make Continuous Contributions
The ability to contribute regularly is maybe the most significant. Many workers will make periodic contributions to their 401(k) accounts if the opportunity to do so exists. It is preferable to use autosave to do it regularly each month. You will be rewarded in the long term if you use automatic savings!
2. Start Putting Money Aside As Soon As Possible
It is vital to begin saving for retirement as soon as possible after leaving the workforce. Even while retirement may seem like a long way off for someone in their late 20s or early 30s, making regular monthly saves over time can allow you to retire sooner than you expect. According to Fidelity Investments, the typical millionaire has contributed to their retirement plan for about three decades. Furthermore, since many of these billionaires prefer to donate the maximum amount permitted, this will result in significant savings over time for the government.
3. Utilize to The Greatest Extent Possible
If your workplace provides a 401(k), they may also give a 401(k) match, which is effectively free money; however, it is your responsibility to take advantage of this opportunity. The Internal Revenue Service increased the maximum contribution limit for workers who enroll in a 401(k) plan to $19,500 in 2020, effective January 1, 2020. If you're 50 or older, you may take advantage of a retirement catch-up provision, which will enable you to save even more money in 2020, up to $6,500.
4. Make 10 Percent to 15 Percent of Your Income
As a general rule of thumb, strive to contribute between 10 percent and 15 percent of your gross income. That figure is intended to incorporate any contributions made by your employer. The average employer contribution for 401(k) millionaires was around 5 percent of their total income. On top of that, throughout the 12-year period in which Fidelity analyzed them, the wealthy group deferred an average of 14 percent of their compensation, or around $13,300 each year Fidelity. Consequently, they had a 19 percent yearly savings rate on their entire funds!
5. Make Long-Term Financial Commitments
Always choose assets for your 401(k) account appropriate for your financial goals, age, and risk tolerance. Generally speaking, the longer you have before retirement, the more risk you can afford to accept in your investment portfolio. It is possible that your account may not develop as quickly as it might if you do not take on an adequate degree of risk. There is a trade-off between the risks and the benefits. The potential for long-term return increases as you increase your risk tolerance by investing in inequities.
6. Don't Cash Out When You’re Switching Jobs
Taking a payout from your 401(k) account is rarely a wise decision when you move employment. It has the potential to result in large tax liabilities and early withdrawal penalties. When you take money out of your 401(k), you forfeit the possibility for it to grow tax-deferred while in your account. It's usually better to keep your retirement savings with your old employer, or even better, to transfer your retirement savings to your new employer's plan or into a rollover IRA rather than moving them to a new employer's plan or into a new one new rollover IRA.
7. Transfer Existing 401(K) Accounts
Old 401(k) funds mustn't be ignored or underutilized. If your new employer's 401(k) plan offers a solid selection of low-cost investment alternatives, you should consider rolling over your precious funds. Please remember that how money is transferred from current accounts to new accounts may have tax consequences.
8. Consult With A Financial Advisor
As a general guideline, strive to save at least one time your income by the age of 30, three times by the age of 40, six times by the age of 50, eight times by the age of 60, and ten times by the age of 67.
