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Are You on Track for a Millionaire Retirement With Only a 401(k)?

By Christy Bieber – Dec 3, 2021 at 2:45AM

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Is this account alone enough to make you a millionaire?

Workplace 401(k)s are common retirement accounts. Many employers offer them, and investing in them is easy since money is taken directly out of your paycheck. You'll get tax benefits if you invest in one, and may even receive matching funds from your employer.

But is a 401(k) enough if you hope to become a millionaire retiree? Is it really possible to amass a seven-figure nest egg just from this account alone? Here's what you need to know. 

Two older people sitting at a coffee table with paperwork in front of them.

Image source: Getty Images.

Is a 401(k) enough to make you a retirement millionaire?

The specific amount you need to save in order to become a millionaire retiree varies based on how old you are. In most cases, through, if you start investing by around the middle of your career, you should be able to save enough in your 401(k) alone to hit your target. 

The table below shows what you'd need to save each year to amass $1 million by age 65, depending on the age when you start contributing to your 401(k) and assuming an 8% average annual return. 

Age When You Start Investing Amount You'll Need to Invest Each Year
25 $3,860
30 $5,803
35 $8,827
40 $13,678
45 $21,852
50 $36,829
55 $69,029

Data source: Calculations by author. 

The 401(k) contribution limit for 2021 is $19,500 plus an additional $6,500 if you are age 50 or older and eligible for catch-up contributions. For 2022, the contribution limit for workers is going up to $20,500 although catch-up contributions will remain the same.

So, as you can see, as long as you start saving before the age of 45, you would be able to use your 401(k) as your sole retirement savings account and still end up with enough money to be a millionaire retiree. 

How saving solely in a 401(k) can make it easier to become a millionaire retiree

Counting on your 401(k) only to make you a millionaire retiree could be a good approach for a few reasons:

  • You may be eligible for an employer match. This would mean your company would match part of the contributions you make to your account. In most cases, your employer matches 50% or 100% of contributions. They'll match this up to a specific maximum percentage of your salary, such as 100% of contributions up to 3% of your earnings. If that's the case, your employer could provide some of the amount you must invest to become a millionaire. Your employer's contributions aren't part of your $19,500 or $20,500 personal contribution limit, either. So, if your matching contributions got you over the amount needed, you could potentially still become a millionaire with a 401(k) alone even if you were over 45 when you started contributing to your account. 
  • You can easily build a diversified portfolio with minimal risk. Many 401(k)s offer the option to invest in target date funds, which automatically put your money into an appropriate mix of different assets based on your retirement timeline. Most also allow you to invest in a mix of different funds of your choosing, but provide recommendations. The investment options 401(k)s offer are generally pretty safe, which minimizes the risk of loss. And, if you follow the recommended asset allocation, you should be able to build a portfolio that produces reasonable returns while limiting risk. 

How investing solely in a 401(k) can make it harder to become a millionaire retiree

Although it's clearly possible to become a millionaire as a senior using a 401(k) alone, it may be more difficult to do so if you don't branch out into other retirement investment accounts.

That's because other accounts, such as an IRA, provide more flexibility in what you can invest in. You could build a portfolio with a much broader mix of assets in an IRA than a 401(k) -- and can even include shares of individual companies in your IRA portfolio. You may be able to earn a much higher return by taking advantage of this wider mix of investment options than the returns you could earn by investing in the funds your 401(k) makes available. 

Some 401(k)s also charge high management fees or allow you to invest only in funds with high expense ratios. This could eat into your returns and make it harder to amass at least $1 million by the time you're a senior.

If you don't like the investments in your 401(k) or would prefer more choice about what to invest in, you may be better off investing only enough to earn the employer match and then using an IRA to supplement your retirement savings. This approach could, in many cases, give you the best chance of amassing a seven-figure nest egg -- although, as the chart above shows, it's clearly not a prerequisite for hitting this goal. 

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