A record number of Americans have reached the coveted milestone of becoming 401(k) millionaires, thanks to strong market performance and disciplined savings habits.
According to Fidelity Investments, one of the largest administrators of employer-sponsored retirement plans, the number of 401(k) millionaires climbed to 544,000 in the third quarter of 2024, up from 497,000 just three months earlier. Additionally, the number of millionaires with Individual Retirement Accounts (IRAs) managed by Fidelity also hit a record high of 418,111.
While this represents a small percentage of all retirement savers, the growing club of 401(k) millionaires provides valuable insights into how anyone can build significant retirement wealth. Here are actionable strategies to help you pave your path to seven-figure retirement savings.
1. Start Saving as Early as Possible
The earlier you begin saving for retirement, the more time your money has to grow through the power of compounding. Even modest contributions made consistently over time can add up significantly. If your employer offers a 401(k) plan, enroll as soon as you’re eligible. The longer you delay, the more potential growth you forfeit.
2. Maximize Your Employer’s Match
Most employers offer a matching contribution for their 401(k) plans, often matching a percentage of your contributions up to a certain threshold. For example, some employers may match 50 cents for every dollar you contribute, up to 6% of your salary. Not taking full advantage of this match is essentially leaving free money on the table.
3. Aim to Save 15% of Your Income
While saving 10% of your pre-tax income is a common recommendation, aiming for 15% or more—including your employer’s match—can significantly accelerate your path to a million-dollar retirement account. If contributing this much initially feels daunting, consider starting smaller and gradually increasing your contribution rate over time.
4. Max Out Your Contributions
If your financial situation allows, work toward contributing the maximum annual limit to your retirement accounts. For 2024, the 401(k) contribution limit is $23,000, or $30,500 for individuals aged 50 and older. Similarly, for IRAs, the annual contribution limit is $7,000, with an additional $1,000 catch-up contribution for those aged 50 and up. Contribution limits are expected to rise in 2025, offering even more opportunities to save.
5. Avoid Early Withdrawals
Early withdrawals from your 401(k) come with steep penalties—typically an additional 10% tax on top of ordinary income taxes—and they rob your account of potential growth. While certain exceptions exist, such as for emergencies or first-time home purchases, these withdrawals should be avoided unless absolutely necessary.
6. Stay Invested During Market Downturns
Market volatility can be nerve-wracking, but selling during downturns often locks in losses. It’s crucial to stay the course and keep your investments intact, even during challenging times. Remember that retirement savings are a long-term endeavor, and markets historically recover over time.
7. Roll Over Your 401(k) When Changing Jobs
When switching employers, avoid cashing out your 401(k). Instead, roll it over into your new employer’s plan or an IRA. This ensures that your retirement savings continue to grow uninterrupted.
8. Be Consistent and Patient
Building a seven-figure retirement balance takes time and consistency. The typical 401(k) millionaire has been saving for about 26 years, contributing over 17% of their pre-tax income. Consistency is key—small, regular contributions can lead to significant wealth over decades.
Time in the Market Beats Timing the Market
One of the most critical factors in reaching millionaire status is staying invested. For example, someone earning $50,000 annually who contributes 10% to their 401(k) (with an employer match of 50% up to 6%) could reach a $1 million balance by age 55, assuming a 7% annual return and 2% annual raises.
As Mike Shamrell of Fidelity Investments puts it, “Put time in the market. Don’t try to time the market.” With these strategies, you can take steps toward joining the growing club of 401(k) millionaires.
