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How Many Years of Maxing Out a 401(k) Will Make You a Millionaire?

By Adam Levy – Jan 12, 2022 at 11:26AM

Key Points

  • The 401(k) offers a generous contribution limit for serious retirement savers.
  • There are several factors that determine how long it'll take you to reach $1 million.
  • And you should plan on your plan not going according to plan.

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The answer depends on a lot of factors.

While most people retire with far less than $1 million in their 401(k), you can easily become a millionaire with just a few years of maxing out the generous contribution limits. For 2022, employees can save up to $20,500 in the tax-advantaged retirement account, and many employers will throw in a company match.

If your goal is to retire with $1 million, here's how many years you need to max out your 401(k).

An envelope full of cash labeled 401k.

Image source: Getty Images.

The factors to consider

Figuring out the number of years you need to max out your 401(k) to become a millionaire depends on a number of factors. Here are some of the biggest.

  • Years until retirement. The more years you have until retirement, the fewer years you need to max out your 401(k). After a few years of contributing, you could coast until retirement age and let the stock market do the rest of the work of growing your savings to reach $1 million.
  • Employer match. If your employer match is generous, you may be able to shave a few years off contributing the max in order to reach $1 million.
  • 401(k) fees. Fees will eat into your returns and slow down the path to $1 million.
  • Asset allocation. Investing solely in stocks will probably get you to $1 million the fastest, but it comes with more risk. Most investors adjust their asset allocation to become more conservative as they approach retirement.
  • Market returns. The ultimate factor in reaching $1 million in retirement savings is getting the market to do most of the earning for you.

One other factor to consider is the annual adjustment in the contribution limit. However, the contribution limit is adjusted for inflation, so we can offset that adjustment somewhat by not factoring inflation into our market return estimates. 

Reaching $1 million ASAP

If you want to get to $1 million as quickly as you possibly can, then you should be maxing out your 401(k) every year until you do.

For the sake of estimation, let's say you have an average salary for someone in their mid-30s of around $55,000. Your employer offers you a $0.50 match per dollar up to 6% of that salary. And your plan and investments have fees averaging 0.4% of assets under management. The expected return on stocks over the next decade is 8%. And you're going to invest 100% in stock index funds.

If you max out your contribution, you'll put in $20,500 per year. Your employer will add another $1,650. You'll earn a net return of 7.6% per year on average. And if everything goes smoothly, you'll have over $1 million in your 401(k) about 21 years later.

Of course, it's highly unlikely everything will go smoothly. You could easily hit $1 million much sooner, or it could take much longer based on actual returns. Regardless, it will require consistently saving a lot of money to reach $1 million as quickly as possible.

What if you're not in a hurry?

You can make the journey to $1 million a lot easier if you start saving as early as possible and you're willing to retire in your 60s. Someone straight out of college with their first salaried position might not have the highest salary. But they could put themselves in a very strong position to save by limiting their expenses and maxing out their 401(k) for just a couple of years.

If a 22-year-old maxes out a 401(k) for two years, earns a 7.6% net return in the account for 43 years, and retires right before turning 66, the odds are this person will be a 401(k) millionaire. And that's without having to contribute a penny more to retirement.

Granted, that comes with significant risks. Returns may not be that good, and savers will probably want to reduce exposure to stocks as they get into their mid-fifties in order to conserve capital for retirement, potentially sacrificing returns.

A more realistic approach is to save as much as is reasonable in a tax-advantaged account every year. If you're maxing it out, you may hit $1 million sooner than you need it. You could choose to retire early or cut back on contributions and spend more while your investments continue to grow.

You can use your own 401(k) plan's details and estimates to determine how quickly you can reach $1 million. But also consider that $1 million is an arbitrary number. You should be planning for your own retirement spending needs, which may require more or less than $1 million in capital.

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