Financial services firm Fidelity revealed in a recent study that nearly 80,000 of its retirement account investors achieved millionaire status during the second quarter, for 10% more 401(k) clients and 13% more IRA clients holding balances worth $1 million or more.
Planning for retirement on your own can be difficult. Talk to a financial advisor about it today.
How Many Retirement Account Millionaires Are There?
In total, 727,104 Fidelity clients hold retirement accounts that are now posted in seven figures, or just slightly less than 2% of the firm’s 37 million Individual Retirement Account and 401(k) account holders.
The new millionaires can thank a 16% gain in stocks during the first six months of the year, as well as any employer matches in 401(k)s and their own discipline in saving and investing.
“We are pleased to see a third straight quarter of positive gains for retirement savers as the market continues to improve and both employees and employers commit to establishing a strong financial future,” said Kevin Barry, president of Workplace Investing at Fidelity Investments.
Strategies for Becoming a 401(k) and IRA Millionaire
Becoming a retirement millionaire may not be too difficult for investors who stick to some basic, common-sense financial tactics. Here are six practical tips to follow:
1. Pay Yourself First and Increase Your Contributions
By signing up for automatic contributions to retirement accounts, your investment happens on a regular basis without any effort from you. In 401(k) accounts, the money is deducted from your paycheck before you even see it, which makes it even easier. Regular, consistent savings – whether the market is up or down – is the key.
Start with a manageable percentage of your income and then make regular increases in your contributions until you’re saving at least 10% of your income, although 15% is better. As your income increases, direct half of any raises or salary gains into your retirement investments.
2. Max Out Your 401(k) Matches
For 401(k) accounts, aim to save the maximum percentage of your salary that will be matched by your employer – because you’re getting free money. If your employer matches 50% of your contribution up to 5% of you salary you’re saving the equivalent of 7.5% of your income if you save at the 5% level – and gives you an automatic 50% profit. Contributing less means you’re leaving money on the table.
3. Keep Your Savings Intact
At the end of the second quarter, Fidelity reported that 17.1% of 401(k) participants had taken loans from their accounts. Taking a loan lowers the invested account balance that can generate gains, and can cost you taxes and penalties if the loan isn’t repaid on time or before you change jobs. Your emergency fund can help you avoid taking loans or hardship withdrawals and keep your retirement money working.
4. Start as Early as Possible
The earlier you start investing, the longer your money can compound earnings over time. You can see the difference by using SmartAsset’s investment growth calculator and plugging in these numbers. A 30-year-old investor who saves $850 per month with a 7% return will have more than $1 million by the time they turn 65. But start just 10 years later, and that 40-year old worker needs to invest $2,000 a month to get to $1 million by age 65. While the 30-year-old invests a total of $306,000 for a profit of about $700,000 (229%), the 40-year-old contributes $480,000 for a 26% lower return, despite contributing 57% more and earning $520,000.
5. Maintain an Emergency Fund
Start building a rainy day fund by saving regularly to a separate bank account. As with your retirement money, make it an automatic deposit on a regular schedule with each paycheck. Use a separate account so you won’t be tempted to spend the money and can monitor your progress. The minimum to aim for is three months worth of your living expenses, but six or even eight months is better. Keep it in cash so you can get at it quickly in an emergency.
6. Get Educated
Don’t just guess at your investments. Learn about different types of investments, including stocks and bonds, and read up on retirement planning. Research different styles of mutual funds in your 401(k) plan so that you can diversify your investments to raise gains and lower risk. You can also look at different types of sample portfolios to help develop your strategy.
Bottom Line
You can become a retirement millionaire yourself using only basic IRAs and your 401(k), or a similar workplace account, if you make regular investments in a diversified set of funds and stick to it over time.
Tips for Retirement
- Talk to a professional. A financial advisor can help, and finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- 401(k)s are some of the most commonly used and valuable retirement savings tools available. Try using SmartAsset’s 401(k) calculator to see what position your 401(k) savings is in.
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