Mutual fund behemoth, Fidelity Investments, released its quarterly report last week which announced that U.S. has now reached a record-breaking number of 401(k) millionaires.
This is great news for future retirees who have been saving diligently as well as a source of motivation for others who are suffering from inertia when it comes to retirement savings.
401(k) Millionaire Club Breaks Records
America is getting richer, thanks to an increased participation in 401(k) plans which have turned almost 168,000 people into millionaires this year, in comparison to only 49,000 participants in 2017.
Of course, there is still a large number of Americans who still aren’t saving enough for their retirement, but experts are hoping that the new report will serve as an inspiration for others to start saving up, because the magic of compound interest can make anyone a millionaire, if they start saving early enough.
The 401(k) millionaire club has remained relatively small over the past years, but now it has finally started to grow. According to a recent report by Fidelity Investments, the number of American employees who will have $1 million in their 401(k) retirement funds has grown to 157,000 this year, almost 45 per cent higher than it was in the first quarter of 2017.
But getting to the millionaire status isn’t a quick or easy route. Many of these 401(k) millionaires have been making contribution towards their retirement fund for over thirty years, says Fidelity, a leading administrator of 401(k) retirement plans in the United States.
Of course, these millionaires have benefited from the market’s positive returns but their most salient quality was that they started saving early in their lives made consistent contributions month after month, until their retirement age.
Fidelity’s senior vice president, Jeanne Thompson says that anyone aspiring to be a millionaire should take a page out of their book and learn to develop saving habits as soon as possible.
Qualities of 401(k) Millionaires
Jeanne says that statistics have shown that most Americans don’t match their employer’s contributions in the 401(k) plans, take loans out of their retirement accounts and cash out immediately after changing jobs.
On the other hand, 401(k) millionaires invest for growth, don’t cash out when they change job or take 401(k) loans which helps their savings grow exponentially over time. The Fidelity report also showed that 401(k) millionaires tend to invest 76 per cent of their savings in equity mutual funds.
Employees are now able to contribute a maximum of $18,500 every year to a 401(k) or federal government’s Thrift Savings Plan (TSP) at their workplace. Workers over the age of 50 are given a catch-up option that allows them to contribute an additional $6,000 on any employer-sponsored retirement plan, increasing the total contribution limit to $24,500 every year.
Fidelity also stated in the report that the average account balance in its IRA and workplace savings plans, including 401(k) and 403(b), had risen to $299,600 in the first quarter of 2018 from $275,700 same time last year.
The year-over-year 401(k) average balance was also up by 8 per cent, although it dropped just by 1 per cent in comparison to last quarter of 2017.
The first quarter analysis from 401(k) plans also showed that employees who made consistent contributions to company-provided retirement plans for 10 years had an average balance of $290,100 in their accounts, much higher than last year’s $250,500. Workers who saved for 15 years had an average balance of $379,600, up from $330,200 in 2017.
TSP millionaire count has also been on an upward trend. According to Federal News Radio’s Mike Causey, 2018 saw a record number of TSP millionaires at 23,962 in comparison to only 3,272 in 2016.
Although the millionaire count has been increasing in almost every retirement plan being offered around the country, experts have noticed a similarity across the board when it comes to their saving habits: they think long-term, invest heavily in C and S indexed funds, they continue to buy stocks even when market condition are shaky and they take advantage of the 5 per cent match provided by their company.