Who Wants To Be A 401(k) Millionaire?
According to new report from Fidelity, there are a record number of 401(k) and IRA holders with balances of more than $1 million. It may sound too good to be true, but it’s more attainable than you think, says Greg McBride, chief financial analyst at Bankrate.
“It’s well within reach. What it requires is not a fat salary, instead it requires discipline of investing at least 10% of your earnings year in and year out over the course of your career,” says McBride. In other words, if you want to be a millionaire (*insert game-show host voice here*), it’s a matter of discipline, discipline, discipline. And it’s not just the millionaires who are receiving good news. The average 401(k) balance also hit a record high—$106,500 at the end of the third quarter, with the average IRA balance also seeing a record $111,000.
Upping the Savings Game
Some of the gains were attributable to a stock market that was chugging right along. But the report also pointed to several specific groups—including women and millennials—that have upped their savings game. Over the last year, 32.2% of 401(k) women investors increased our contribution rates—which was greater than the 30.6% of men who increased their contributions. The average balance for millennial 401(k) account holders: $82,000—up from $20,600 five years earlier. We should probably stop underestimating millennials.
Another notable change?
“People generally recognize how important savings is more so than prior to the recession, there’s greater urgency to move the needle on savings,” says Greg McBride, chief financial analyst at Bankrate.
Target-date funds have become the popular girls in school when it comes to where we’re putting our assets. Just over half of all 401(k) savers 50.4%—had all of their retirement savings in target-date funds. That takes a big worry off the plate of retirement savers who aren’t sure exactly when, where and how to set their investment mixes to begin with, or to fix them to account for gains or losses in the markets.
Target-date funds solve for that in a single move. “It relieves the investor of the decision on how to invest that money today and how to change the allocation as the year goes by, the target-date fund takes care of that for you, you just need to keep putting money in,” says McBride.
That’s something we all need to be doing year in and year out—regardless of short-term moves in stocks and bonds. McBride attributes the gains in this report to the strong economy—more people are working and making more money. But he also says the Great Recession is to thank. “People generally recognize how important savings is more so than prior to the recession, there’s greater urgency to move the needle on savings,” says McBride.
Retirement expert Ed Slott agrees, advising investors not to get overly disheartened or discouraged by the fact that the downturn this past month may have wiped away some of those Q3 gains.
“Retirement saving is a long-term event, and even though we have these downturns, you have to weather the storms and be prepared for the ups and downs,” says Slott. The lesson here is this: There will be downturns and scares, but it’s important that you contribute consistently toward your retirement savings anyway because, as you can see from these findings, there are major benefits.
Which is why it’s good news that next year you’ll be able to plow even more into these tax-advantaged retirement accounts. The IRS recently announced that the threshold for workers who contribute to to employer-sponsored 401(k) will increase from $18,500 to $19,000, and the limit for IRA contributions will bump up to $6,000 per year. (Fifty-plus workers can kick an extra $6,000 into their 401(k)s and $1,000 into their IRAs in the form of catch-up contributions.)