Who Wants to be a (401k) Millionaire?

Who wants to be a millionaire? Fidelity released their annual study and the number of 401k millionaires increased by 11.5% in 2023. What does it take to get there? We will share some insights from their data and provide some insight to help you become a 401k millionaire.

Watch Now: Who Wants to be a (401k) Millionaire?

Timeline

0:00 - Intro
0:39 - Key statistics
1:25 - The most important factor
3:30 - Focus on reward, not risk
5:03 - Using the employer match
6:23 - Tips to help you become a 401k millionaire
8:11 - Outro

Key Stats

At the end of 2023, the ranks of the 401k millionaires rose by 11.5%. Here are some other interesting numbers from Fidelity's report.

73% of eligible employees participated in their employer's plan.
The average 401k balance increased by 15% in 2023.
The total savings rate (employee and employer contributions) was 13.9%
37% of workers increased their contributions in 2023.
81% or workers received an employercontribution
78% pf savers were contributing enough to receive their full matching contribution

Want to be a millionaire? Here is the MOST important thing

When talking about 401k plans most people tend to get hung up on details like expense ratios of funds, roth or pre-tax, or what investment to use within the plan. While those things matter, they are far less important than how much you save. Saving consistently and continuously over time will impact your overall success more than any other factor. Here is what Fidelity found:

This chart from Fidelity was interesting. Fidelity studied 23,500 plans, and over 22.7 million participants. Overall, people who have saved continuously in the same plan showed the following.

at least 5 years: average balance of nearly $250,000
at least 10 years: average balance of just under $400,000
at least 15 years: average balance of just under $500,000

Saving continuously is a major factor in your overall success.

Focus on Reward

In our last episode, we talked about the mindsets needed to accumulate wealth. One of those was to focus on reward more so than risk. When we look at a basic mathematical example, we can illustrate why this is important.

In this example, we look at the impact of contributing $4,000 per year over 40 years. The rates illustrated are 4%, 6%, 8% and 10% per year.

Keep in mind this is not an actual investment just a visual illustration of the impact of compounded growth over a long period of time.

The investments that have historically generated higher returns, generally have more volatility. Unfortunately, many savers focus too much attention on those short term problems instead of the long term potential.

The Power of The Employer Match

One positive statistic from the Fidelity study was 78% of participants are saving enough to receive the full matching contribution from their employers. You often hear people refer to the employer match as "free money." It is a way for employers to encourage you to save for your retirement.

While it is encouraging to see over three-quarters of participants taking advantage of this, it means roughly one-fourth were leaving money on the table. By not maximizing the match, you are being paid less than you deserve. It is a fantastic way to improve your overall savings and improve your chances for real-life success.

Tips to help you become a 401k millionaire

No need to phone a friend, or poll the audience. We are going to make it easy for you.

You should be saving—at a minimum—enough to receive the full matching contribution from your employer, if not more. It is the single biggest factor in your overall success.

We all encounter some type of adversity. And when trouble strikes it is easier to reduce your 401k contributions to get through the tough spot. Instead of reducing how much you save, look at reducing your expenses.

Over time, people tend to earn more. You will also find yourself spending more as that happens. Don't forget to also increase your savings efforts as well. When you get a pay raise, increase the amount you save. Defer part of your bonus. The bigger your lifestyle gets, the more you will need in retirement.

As we've shown, pursuing investments that can increase your long-term returns can have a dramatic impact on your nest egg over time. Volatility is a constant element of investing, and it is uncomfortable. But it also tends to create the opportunities for long-term growth.

Like most things in life, whether you are a saver, an athlete, or a musician, your success depends on your efforts and committment to doing things to make you successful. One of the ways a financial planner can add value is to show you the impact of making little changes and holding you accountable to achieving your goals. If you would like to have a conversation, we are here to help.

Appearing in this video

Evan Brockmeier

Evan is a financial advisor in Marietta, Ohio.

Neal Watson, CFP®

Neal is a Certified Financial Planner™ Professional in Marietta, Ohio