A 401(k), an employer-sponsored retirement plan with tax benefits, is one of the most popular ways Americans save for their golden years. According to the latest figures from the Investment Company Institute, these plans hold almost $9 trillion in assets for 70 million participants. The average balance in these accounts is $132,300, according to a recent analysis by a major retirement plan provider of Q3 2024 data from 24.4 million 401(k) plan participants.
The highest average balance is among Americans aged 65-69, at $252,800. Few Americans have a balance topping $1 million in their 401(k) workplace retirement plans, although those who have reached that milestone undoubtedly worked hard to get there. According to Fidelity, 544,000 individuals are 401(k) millionaires.
Considering the total number of 401(k) participants included in its study (24.4 million), this is a tiny minority of less than 3%. Building wealth for retirement takes effort and time, and if you don’t start early, you might struggle to catch up. Many people wait until they’re older to start building retirement savings, often due to childcare, mortgages, and tuition expenses.
A study showed that 20% of Americans aged 50 and older have no retirement savings. People who retire with $1 million or more tend to start working toward that milestone early in their careers. If your goal is to retire with $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 at a young age.
Reaching the 401(k) millionaire milestone
Even small contributions can grow significantly over time due to compounded returns. For instance, if you begin funding an IRA or 401(k) at age 25 with a monthly contribution of $420 and your portfolio delivers a 7% yearly return, you could accumulate just over $1 million by age 65.
It’s crucial to start young and stay invested regardless of market fluctuations. Experts advise maintaining a diversified, balanced portfolio with an asset allocation that adjusts as you age. If you’re unsure how to shape the best retirement portfolio for your goals, seek help from a financial adviser.
Taking advantage of any employer-sponsored match programs is also key. A 2024 Vanguard report states that 95% of such retirement plans offered a match. Consistently living below your means and budgeting wisely are also critical strategies.
Roughly 25% of U.S. households were living paycheck to paycheck in 2024. Automating your retirement savings is another effective strategy. The convenience of automatic payroll deductions makes saving easier, but not everyone has access to a 401(k).
For those limited to an IRA, setting up automatic transfers from your bank account could help you stay on track. Starting early, consistently contributing, and taking advantage of employer matches and financial advice are ways to potentially retire with $1 million or more.
Image Credits: Photo by Towfiqu barbhuiya on Unsplash
