Career Advice

4 Secrets to Becoming a 401K Millionnaire

Enjoying our best years

The importance of financial freedom and saving for retirement is nothing new for any generation. Despite this, 66% of millennials report not having any savings for retirement, while only one-third report having an average of $67,891 tucked away!

While there are many different ways to plan for retirement, maximizing your 401(k) is becoming more and more popular across the U.S. With proper planning, these 401(k) retirement plans can one day lead to millionaire status. In fact, “The 401(k) millionaire’s club is relatively small, but it’s growing. The number of workers with $1 million or more in their 401(k) increased to 157,000 at the end of the first quarter this year, an increase of 45 percent compared with the same time a year earlier”, according to Fidelity Investment.

While many of these millionaire individuals tend to be more senior, and have been saving for 30+ years, younger generations are becoming more financially conscious of their financial futures, as information and tools become more sophisticated and accessible, says an expert from Fidelity Investment.

So what can we learn from these 401(k) millionaires and apply to our own every day saving habits? Let’s review some best practices this elite group most definitely exhibits.

1. Have a plan and keep up with your advisor. As you progress through your career, it’s important to check in frequently and reassess your goals and saving strategies. You may have started off as a conservative investor, but as you mature, your tolerance for risk will increase. Always stay on top of your savings and investments, and remain in touch with the advisors managing your money.

Fidelity Investments offers a free contribution calculator to help you better understand how much you need to accumulate and contribute in your 401(k) over time. By understanding how much you need to reach your retirement goals, and working together with your advisor, you can create and stick to a savings plan that works for you! Know your annual contribution limits, and be sure to max those out as much as possible.

2. Make the most of your company matching. This is a sure way to guarantee yourself free money, year after year! So what exactly does company matching mean? Say for example your company will match 25% of your annual contribution, up to a maximum of 1000$. This means, if you contribute 4000$, your company will then contribute an additional 1000$! You always want to get the full match, otherwise you’ll be leaving free money on the table.

Always take a look at what your employer is offering and max out those contributions. You might hear of “X” being offered today, but if you dig deeper, you might find savings in different ways. For example, on top of 401(k) contributions, your organization may have profit sharing as well. When evaluating new job opportunities, always be sure to think about these perks, and how your organization is thinking about your retirement needs.

3. Start early, and make saving a regular habit. One common thread reported by 401(k) millionaires is disciplined saving habits, while investing for the long haul! If you learn from a young age how to put an extra 20$ away (even if that’s all you have), you’ll have no trouble putting that extra 200$ away a few years down the line.

“The more you save today, the less you will need to save in the future in order to achieve those same goals”, says a Financial Advisor from RBC. Ideally, you don’t want to be pinched to put away thousands of dollars each month towards the end of your career in order to retire comfortably. The money you don’t see, you won’t miss or spend, so remember to always pay yourself first, make saving a priority, and max out your contributions each year. You can do this by automatically shaving off a percentage from each pay cheque and making direct deposits into your 401(k)! Starting early also means reaping the benefits of compound interest, so don’t wait!

4. Don’t always trust the fads. Let’s look at cryptocurrencies as a prime example. While early investors of Bitcoins have gained huge returns, the cryptocurrency fervor has spurred a frenzy of Initial Coin Offerings, raising over 6 billion dollars in 2018. While people have been quick to hop on the cryptocurrency bandwagon, nearly 46% of the 902 cryptocurrencies have already failed or been revealed to be scams. Don’t just jump in because you feel enamored and swept away. Rather, get help, and read about what’s really going on in the markets, as you may realize you’re better off investing in more stable assets. John Oliver breaks down the importance of acting with caution in unpredictable spaces in an easily digestible episode of “Last Week Tonight” (click here to view).

Fidelity Investment Expert explains the two most common mistakes young people are making with their 401(k)s is being too conservative with their investments, and waiting too long to get started! By investing too late, and too conservatively, your money will gain less value, and the effects of compound interest over time won’t be nearly as high.

If you’re still not convinced that you too can be part of the elite 401(k) millionaire group, make an appointment with your advisor, and start learning about how to make saving work for you and your future!

Stacy Pollack is a Learning Specialist with an MA in educational technology. She is passionate about building leadership programs that engage and contribute to the success of her organization. She loves to share her perspective on job hunting, career building, and networking for success. Connect with her on LinkedIn or Twitter.

 

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