Meet the 401(k) Millionaires: How Many Americans Are Hitting the Retirement Jackpot?

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In a surprising twist revealed by Fidelity’s latest retirement study, the ranks of America’s retirement millionaires have swelled by 10% in just the second quarter of 2023. A growing number of individuals now boast 401(k) accounts exceeding the million-dollar mark.

Yet, this financial triumph contrasts sharply with the grim reality for the average American, whose 401(k) balance tells a very different story.

Who Are the Retirement Millionaires?

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Although the Fidelity study does not provide a breakdown of the professions of retirement millionaires, it is safe to assume that high-income earners have a more significant potential to save money in their retirement accounts. 

Amar Shah, CFA, CFP, works with many clients that have 7 figure retirement balances. He says, “Most of our clients in their mid to late 60s are transitioning into the next chapter in life and stepping away from their original professional careers. Clients who have accumulated these large balances typically have been professional business owners like doctors, lawyers, or engineering consultants.”

High-income skills often pave the way for lucrative professions that enable individuals to allot a hefty portion of their income towards retirement savings after comfortably meeting their living expenses. These skills, which may range from advanced technical abilities to specialized knowledge in fields such as medicine, law, or financial management, command a premium in the market. Professionals with these skills typically garner 7 figure salaries, providing the financial leeway to prioritize long-term savings. 

However, it’s essential to note that high incomes are not the sole pathway to substantial retirement savings. Individuals can also accumulate a sizeable retirement nest egg by adhering to a disciplined saving and investment strategy

Angela Dorsey, CFP, says, “What is interesting is that you don’t need an unusually high income to reach one million in retirement assets.” 

Some of her retirement millionaire clients include a Senior Human Resources Specialist with a $95,000 annual salary and a Marketing Manager with a $101,000 income. 

Furthermore, many employers offer matching contributions to 401(k) accounts, which can significantly accelerate savings growth. Therefore, even individuals with modest incomes can aspire to achieve the status of retirement millionaire by focusing on sustained saving over time and leveraging employer contributions. The commitment to financial discipline truly matters, not merely the size of the paycheck.

Average Retirement Balances Look Bleak

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Although retirement accounts with over a million dollars capture the imagination, the average American has much lower savings balances. 

The same Fidelity study shows that the average IRA balance was $113,800 in Q2 2023, and the average 401(k) balance was $112,400.

A Vanguard study released in June 2023 showed that in 2022, the average account balance for Vanguard participants was $112,572, and the median balance was $27,376.

The substantial disparity between the median and average balance arises from a limited number of sizable accounts that considerably elevate the average above the median. 

The U.S. Census Bureau paints a similarly bleak picture of median IRA and 401(k) account balances at $30,000.

Getting Retirement Savings Back on Track

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Numerous factors have posed challenges for individuals looking to save for retirement. However, if your retirement savings fall below your desired level, there is still an opportunity to rectify the situation. Here are 4 steps to follow

1. Check your asset allocation

2. Increase your contribution rate

3. Stay the course

4. Consider smart tax planning strategies

#1 Consider Holistic Asset Allocation

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When considering asset allocation for optimizing retirement savings, looking beyond just your 401(k) account is crucial. Many investors must consider other income-producing assets besides their retirement accounts, which comprise their total net worth

Define an approach to retirement savings, encompassing all your assets, including 401(k), Individual Retirement Accounts (IRAs), brokerage accounts, and real estate, to provide a more balanced and diversified portfolio. This can help minimize risk while maximizing potential returns, aiding in achieving your retirement goals.

# 2 Increase Contribution Rate

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Another vital strategy to optimize your retirement savings involves increasing your savings rate as your income grows. Your salary may be relatively low when starting your career, making it challenging to set aside a substantial portion for retirement. However, starting with whatever you can comfortably afford is essential, even if it’s a small percentage of your income. 

As your income increases over time, progressively raise your savings rate proportionately. This strategy, often called “incremental saving,” allows you to grow your retirement nest egg gradually and sustainably without placing undue financial strain on your current lifestyle.

For 2024, the annual contribution limit for 401(k) is $23,000. However, individuals above the age of 50 have the opportunity to make supplemental catch-up contributions of up to $7,500 per year. 

# 3 Stay the Course

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Kevin M. Arquette, CFP, noticed that staying the course no matter the volatility helped his clients accumulate a seven-figure retirement portfolio. He says, “A noteworthy trait among many of these clients was their relatively passive approach to managing their accounts; they refrained from impulsive reactions during stock market downturns. By allowing the forces of time and compound interest to work in their favor, they have now positioned themselves to retire on their terms and establish a lasting legacy for their families.

# 4 Do Smart Tax Planning

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Having retirement accounts over a million is an accomplishment. However, tax-deferred accounts can result in significant tax hits without proper planning. 

Angela Dorsey, CFP, recommends strategic Roth IRA Conversions. Amounts converted from a pre-tax retirement account to a Roth IRA are taxed as ordinary income. However, these conversions can be done in a tax-efficient way to take advantage of lower-income years, such as the years between retirement and when required minimum distributions (RMDs) begin. Without doing Roth IRA Conversions, RMDs can push a retiree unnecessarily into a higher tax bracket.

Individuals pursuing early retirement have a longer window to perform these conversions in a systematic manner known as the Roth conversion ladder.

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Top 6 High-Paying Jobs That Thrive Even in Recession Times

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We all want a job that pays well, gives our life meaning and lets us do something useful. However, job security is also vital to long-term growth and increasing our average net worth, which means working in a recession-proof field. If the past few years have taught us anything, some jobs are built to last and can withstand any economic downturn. It can unquestionably influence the field of work that we choose to go into. So, what are recession-proof jobs, and what aren’t? Here’s a look at some of the top recession-proof jobs.

Top 6 High-Paying Jobs That Thrive Even in Recession Times

Homeownership Crisis: How the American Dream Slipped Away in Just 4 Years

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Today, aspiring homeowners face a daunting financial reality: earning over $106,000 is now a prerequisite for affording a home comfortably—an 80% increase from January 2020. Median income has risen only 23% in the same time frame putting the dream of homeownership out of reach for many Americans as per the latest report from Zillow.

Homeownership Crisis: How the American Dream Slipped Away in Just 4 Years

Surging 401(k) Hardship Withdrawals Unveil a Growing Concern Threatening Middle-Class Financial Stability

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Recent reports from major retirement players like Vanguard, Fidelity Investments, and Bank of America point to a troubling trend. More individuals are resorting to hardship withdrawals from their 401(k) accounts, signaling a rise in immediate financial strains. This emerging pattern indicates that many Americans are navigating severe financial challenges.

Surging 401(k) Hardship Withdrawals Unveil a Growing Concern Threatening Middle-Class Financial Stability

Social Security Faces Insolvency in Just 10 Years

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The Trustees of Social Security and Medicare unveiled their yearly financial forecasts for both programs, looking ahead over the next 75 years. The newly released projections for Social Security paint a grim picture of rapid progression towards insolvency in 10 years, underscoring the urgent need for trust fund remedies to avert widespread benefit reductions or sudden adjustments in taxes or benefits.

Social Security Faces Insolvency in Just 10 Years

Investors Snatch 26% of Affordable Homes, Crushing Dreams of Homeownership for Many

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In the fourth quarter of 2023, real estate investors secured a whopping 26.1% of affordable homes sold in the U.S as per a Redfin report. This figure, a record high, marks a significant surge from the previous year’s 24%. Investors also acquired 13.6% of mid-priced homes (a slight decrease from 14.3% a year earlier) and 15.9% of high-priced homes (a slight increase from 15.4% a year earlier).

Investors Snatch 26% of Affordable Homes, Crushing Dreams of Homeownership for Many

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