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Becoming a 401(k) millionaire is the retirement dream of many Americans.
However, many don’t even come close to that figure: The average workplace retirement account for clients aged 65 or older is just $272,588, according to pension provider Vanguard.
In fact, even the median balance is much lower, at $88,488, demonstrating how much larger accounts can skew the average upward.
Now, those who managed to stash away the coveted seven figures of cash in their 401(k)s are revealing the three secrets that helped them do it.
In 2024, workers will be able to contribute up to $23,000 a year to a 401(k) plan
1. Maximize contributions EVERY year
Building a million-dollar retirement account is difficult even for high earners because of contribution restrictions.
In 2024, workers will be able to contribute up to $23,000 a year to a 401(k) plan, up slightly from $22,500 in 2023.
The limit is adjusted for inflation each year, having risen from just $9,240 in 1994.
This means that if a worker had contributed the maximum amount each year as the limit increases, he or she could have contributed a total of $449,480.
This figure could be helped by employer contributions, with many companies matching up to 6 percent of an employee’s salary.
2. Make smart investment decisions
While making maximum contributions is a great start, to increase the return potential of your cash you need to put it to work.
This means making decisions to maximize growth and minimize risk.
Low-cost index fund options have expanded rapidly over the years.
Most of the larger platforms offer at least a couple of passively managed funds that track indices like the S&P 500.
While actively managed funds are also an option, they tend to underperform the broader market and come with higher fees that can reduce returns.
Many 401(k) millionaires understood that by choosing simple, low-cost funds they can let the market work its magic.
According to Vanguard, the average retirement account for people over 65 is worth $272,588
3 Time
Becoming a 401(k) millionaire doesn’t happen overnight—it’s a long-term project that spans decades.
With a 10 percent annual stock market return and maxing out our contributions, it would still take at least twenty years to build a million-dollar account.
Compound interest and bank stock market returns over decades can do much of the heavy lifting.
For example, a $10,000 investment in the S&P 500 in 1994 would be worth about $180,000 today, according to the Hartford mutual fund company.
