How to Save a Million in Your 401(k)

The United States is in an enviable position, having produced more millionaires than anywhere else in the world. A fourth-quarter report from Fidelity Investments, a major provider of 401(k) plans, found that 401(k) balances over $1,000,000 grew 21 percent in the fourth quarter to a record number of 422,000 participants. Account holders exceeding this threshold had grown by 41 percent this year. According to the report, the average account balance for this happy segment was $1,551,300.

A combination of favorable market conditions, stronger savings rates and higher overall wages had helped achieve these record balance sheet levels. Fidelity reported that 37 percent of 401(k) participants increased their contributions last year. To put things in perspective, the average 401(k) balance for all participants was $118,000, and the average savings rate for all participants was almost 14 percent, according to Fidelity. If you have less than the average balance, don’t worry. It’s just a reminder to get serious about your finances.

If you’re wondering how long it will take to grow your account into a seven-figure behemoth, use your 401(k) plan’s retirement calculator. For example, you’re 40, have $118,000 in your 401(k), and want to cross the seven-figure mark in 20 years. Based on a hypothetical long-term market return of 7.5 percent, you would need to save $875 monthly in your 401(k) to reach the magic number of $1 million by your 60th birthday. The good news is that your $875 contribution amount can be offset or increased by any employer contributions you receive.

Patience and time in the market are your friends for those currently saving for retirement. Market volatility in the coming years will likely threaten your decision. Stick to your plan, keep your wits about you, and seek professional help if necessary. Regarding patience, Ray Kroc of McDonald’s once joked, “I was an overnight success, but 30 years is a long night!” And everyone’s favorite uncle, Warren Buffett, once said, “The most important thing about making money is time. You don’t have to be particularly smart; you just have to be patient.” I wish you patience and good luck on the financial journey ahead!

Eric Tashlein can be reached for questions at 800-878-7152. He is a Certified Financial Planner Professional™ and financial advisor with Cambridge Investment Research Advisors, Inc.. His office is OES Wealth Partners, 71 Bradley Road, Suite 4-A, Madison, CT 06443; www.oeswealthpartners.com. The information provided is for educational purposes only and is not intended as an offer or solicitation to sell or buy any specific securities, investments or investment strategies. Investing involves risks and is not guaranteed. Be sure to consult a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.” Advisory services offered through investment advisors of Cambridge Investment Research Advisors, Inc. Cambridge Investment Research Advisors, Inc. and OES Wealth Partners are not affiliated.”