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Under 30? Here's Your 4-Step Plan to a $1 Million 401(k) by 60

By Christy Bieber - Updated Apr 24, 2021 at 7:50PM

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Here's what to do to make it happen.

Are you young and already dreaming of retiring a millionaire?

While it may come as a surprise, setting a goal of a seven-figure nest egg is not only doable for most Americans, but it's actually a good idea. A million dollars saved will produce only around $40,000 in retirement income for most people. And, because of inflation, it isn't the fortune it might seem to be at first glance. 

The good news is, there are just four steps you need to take to become a 401(k) millionaire over time. Here's what they are.  

Older couple reviewing financial paperwork.

Image source: Getty Images.

1. Sign up for your 401(k) by age 30

The sooner you start investing, the easier it is to become a millionaire.

That's because you have more time to make contributions to your retirement accounts, so you can inevitably make more of them. And the sooner your money is invested, the sooner it can begin earning returns. The money your investments make can be reinvested and start earning returns too -- which accelerates the growth of your nest egg. 

If you hope to become a 401(k) millionaire by the age of 60, you'll likely want to begin putting money into your account at least by age 30, or sooner if possible. While it's possible to amass a million-dollar nest egg if you start later, it'll require much larger annual investments. 

2. Invest at least $8,820 annually including your employer match

If you start investing by age 30, you should be able to amass around $1 million in savings by age 65 if you contribute at least $8,820 to your 401(k) every year (assuming an 8% average rate of return). That's around $735 per month. 

At first glance, that may seem like a lot. But it's important to remember a few things.

First, most companies offer an employer match, so your company may give you part of that money. Say, for example, that your business matches 100% of your contributions up to 3% of your salary. The exact amount of your match would vary based on your earnings. If you made around $40,000 per year, your company would give you up to $1,200 in free money for retirement. That means you'd only have to contribute $7,620 out of your own pocket. 

And this contribution is made with pre-tax dollars, so it doesn't reduce your taxable income as much. If you're in the 12% tax bracket, a $7,620 contribution would save you around $914 in taxes, so it would only reduce your take-home pay by around $6,706.

All of that means you'd actually be reducing the amount of money you bring home by about $558 per month, or about 17% of your income. That's not an unreasonable amount. It'll also get easier to save that much as your income grows (although, ideally, you'd increase the amount you invest as your income goes up). 

3. Choose the right mix of investments

Your $8,820 in annual retirement savings would turn into $1 million by age 60 only if you earned an 8% average annual return on investments. If you earn less than that, you won't hit your savings target of having a seven-figure nest egg by age 60 unless you invested more. 

The rate of return you're likely to earn depends on what you invest in. If you're too conservative, you may earn a much smaller return and would need to put aside a far larger amount of money each month. On the other hand, if you take too many risks, you also risk losing money and not making your goal. 

Most 401(k) accounts have a limited pool of investment options. You may be able to invest in a target-date fund that provides you with an appropriate mix of assets. However, many people do better by choosing funds within their 401(k) accounts themselves. Take the time to look into all your options and consider what investment strategy would work best for you.  

4. Leave your money to grow

Once you've invested your money, it's imperative you don't take it out or you could jeopardize your chances of hitting millionaire status. While 401(k) loans or withdrawals may seem tempting during times of financial hardship, leave your retirement funds alone and let them grow for the long term. 

By following these four steps, you should have around $1 million by the age of 60 and can start getting ready to leave the workforce and enjoy a retirement free of financial worries. 

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