Discover the 401(k) Millionaires Striking It Rich for Retirement
Fidelity revealed that the count of 401(k) accounts holding at least $1 million increased by 20% to 422,000 in the fourth quarter of 2023, and saw a 41% rise over the entire year.
The average balance for these accounts reached $1,551,300 in the fourth quarter.
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?
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.
Stock Market Gains Increase 401(k) Balances
Due to robust gains in stocks and bonds throughout 2023, alongside consistent contributions from savers and employer match programs, 401(k) investors concluded the year on a high note.
This update comes from the latest fourth-quarter figures released by Fidelity Investments, a leading provider of workplace retirement plans servicing 23 million 401(k) participants.
By the end of the fourth quarter, the average 401(k) balance had climbed to $118,600, marking a 14% increase for the year.
Generational Divide in Balances
By the end of 2023, Gen X workers who had consistently contributed to their 401(k) plans for 15 years reached an impressive average balance of $501,000, demonstrating the advantages of steady savings, maximizing employer matches, and maintaining a long-term retirement strategy.
Additionally, Gen Z’s Roth IRA accounts saw a 50% increase in the fourth quarter of 2023 compared to the same period in 2022, with their average contributions rising by 1.1%. IRA accounts held by Gen Z women experienced a significant 59% growth over the past year.
What Did These Participants Do Differently?
However, market performance isn’t the sole contributor to increased account balances. Fidelity noted that improved savings habits also had a significant impact.
Throughout the past year, 27% of plan participants actively raised their contribution rates.
Additionally, 78% of 401(k) savers contributed at levels sufficient to receive the full matching contribution from their employers.
Average Retirement Balances Look Bleak
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 $116,600 at the end of Q4 2023, and the average 401(k) balance was $118,600.
A Vanguard study shows the average account balance for Vanguard participants increased by 19% in 2023 and was $134,128 as of year-end 2023.
The median account balance was $35,286, a 29% increase since year-end 2022.
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
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
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
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
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
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
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
Social Security Faces Insolvency in Just 10 Years
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Social Security Faces Insolvency in Just 10 Years
Maximize Your Benefits: Essential Social Security Strategies for Singles
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Planning to Retire? Check Out The Most Affordable States – Surprisingly, Florida Isn’t One of Them
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Planning to Retire? Check Out The Most Affordable States – Surprisingly, Florida Isn’t One of Them
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Maximize Your Social Security Benefits with These 14 Smart Strategies
Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible
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Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible
What SECURE Act 2.0 Means for Your Future Retirement Plan
Three years on from the groundbreaking SECURE Act, which revolutionized America’s retirement landscape for the first time in a decade, the SECURE Act 2.0 sequel legislation aims to widen the gateway to retirement plans and benefits, introducing pivotal changes like automatic enrollment in select workplace pensions, increased catch-up contributions for the seasoned workforce, and extended retirement saving opportunities for part-time employees. Moreover, it promises to bolster individuals’ ability to set aside emergency funds, ensuring swift access in times of need, marking another significant stride toward securing a more financially stable future for all. Here are some of the key provisions.
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Nearly a Million People Risk Losing Over $1 Billion in Unclaimed 2020 Tax Refunds If They Don’t Act by May 17
Tick tock, the clock is counting down for nearly a million Americans who stand on the brink of losing out on a staggering sum of over $1 billion in unclaimed tax refunds from 2020. With the May 17 deadline looming, it’s a race against time to secure what’s rightfully yours.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
M1 Finance: John compared M1 Finance against Vanguard, Schwab, Fidelity, Wealthfront and Betterment to find the perfect investment platform. He uses it due to zero fees, very low minimums, automated investment with automatic rebalancing. The pre-built asset allocations and fractional shares helps one get started right away.
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Streitwise is available for accredited and non-accredited investors. They have one of the lowest fees and high “skin in the game,” with over $5M of capital invested by founders in the deals. It is also open to foreign/non-USA investor. Minimum investment is $5,000.
Platforms like Yieldstreet provide investment options in art, legal, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.
