Fidelity Investments reports that the number of investors with 401 (k) account balances of $1 million or more has reached 180,000 in the first quarter of 2019.
That number is a 35% increase since the end of 2018. Joining the financially secure ranks is quite attainable if you remain consistent, patience, and not frenetic in your investment choices.
Think of it as a marathon, not a sprint. (Investopedia)
Becoming a 401(k) millionaire is slow going, not unlike training to run a long-distance race. When you first become eligible to contribute to a 401(k) plan, contribute as much as you can. According to Fidelity, the average 401(k) millionaire contributed to his or her 401(k) for 30-plus years. If your employer offers a match, contribute enough to earn the full match. Not doing so is leaving free money on the table.
The key is to start early. Even if you can only afford to contribute 3% of your salary, get started now. Try to increase that to 4% or 5% the next year and each year until you approach the maximum contribution limit. For 2019 the limit is $19,000, with an additional $6,000 catch-up contribution for those who are 50 or over at any point during the year. In 2020, the limits rise to $19,500 and $6,500.
Select your 401(k) account investments based on your financial objectives, age, and risk tolerance. The general rule is that the longer you have until retirement, the more risk you can take. If you don’t take an appropriate amount of risk, your account won’t grow as fast as it could.
There are countless stories of plan participants in their 20s with all or a large percentage of their account in their plan’s money market or stable value option. Although these options are low risk, they historically don’t perform as well as equities over the long term.