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Want to Be a Millionaire by 45? Here's How Your 401(k) Can Get You There

By Kailey Hagen - Jun 6, 2021 at 10:01AM

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You don't have to wait until retirement to become a millionaire.

If you're trying to become a millionaire, a 401(k) is one of the most powerful tools at your disposal. It's tax-advantaged, so you either get a tax break the year you contribute funds or the year you withdraw them. Some employers give you a bonus for stashing money here. And if you invest wisely, you can grow your nest egg a lot faster than you could with a savings account. You could even go from $0 to $1 million in less than 23 years.

How your 401(k) can make you a millionaire in 23 years or less

You're allowed to contribute up to $19,500 to a 401(k) in 2021 if you're under 50 and $26,000 if you're 50 or older. If you contributed that much every year and you earned a 7% average annual rate of return on your investments, you'd have nearly $1.1 million in 23 years. If you started at 22, that means you could be a millionaire by 45.

Two smiling people counting money.

Image source: Getty Images.

But you could get there even faster. The above example assumes you're starting from nothing, but if you already have some savings, it won't take you as long to reach $1 million. If you had $5,000 to start with, it would only take you 22 years to get there. And if you had $50,000 already saved, it would take you less than 20 years.

You could also shave some time off if you got an employer match. If your company offers a dollar-for-dollar match on up to 3% of your income and you make $60,000 per year, that's an extra $1,800 per year going toward your retirement. That money could help you go from $0 to $1 million in just over 21 years.

And, of course, you could get to $1 million faster if you were saving more than $19,500 per year. That's the most you're allowed to contribute in 2021 if you're under 50, but the government periodically raises these contribution limits to help people save more. Once you hit 50, you're allowed to make catch-up contributions. That's currently another $6,500 per year. If you pay attention to these contribution limit increases and raise your contributions accordingly, you could shave even more time off your quest for $1 million.

What if you can't max out your contributions every year?

If you can't afford to put $19,500 in your 401(k) every year, it's going to take you longer to save $1 million. But that doesn't mean you can't get there. Use these tips to reach $1 million as quickly as possible.

  • Save as much as you're able to: Contribute as much as you can to your 401(k) every year. When you get a raise, increase your contributions accordingly.
  • Try to reduce discretionary purchases: By reducing your expenses every month, you can free up more cash for your 401(k).
  • Claim your full employer match, if possible: Talk to your company's HR department to learn how your company's matching formula works. Try to contribute at least enough to get the full match every year.

Using these strategies, you should be able to reach $1 million eventually. But don't stop there. For most people, retirement will cost more than $1 million, especially for those retiring younger. Take some time to work out how much you actually need for retirement and make that your goal.

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