If you're seeking to join the millionaire club, your 401(k) may be your ticket to success. Fidelity reported a jump in 401(k) millionaires during the pandemic, and you could be next in line to claim your retirement treasure. All you have to do is follow a few simple steps to maximize your chances of success.
We'll dive into your million-dollar 401(k) action plan now, so you don't have to delay your success any longer.
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Your 401(k) can become your wealth partner
It may be hard to believe that you can build a million-dollar retirement portfolio at work, but the 401(k) makes it easier than ever to achieve this goal. This employer-sponsored retirement plan allows you to contribute money from your paycheck to fund the account. The best part is that your employer does all the legwork. All you have to do is determine how much you want to contribute and let the automatic paycheck deductions begin.
When you contribute to a 401(k), you'll have a chance to load up on tax benefits that can expedite your millionaire journey. Every dollar you contribute to a 401(k) can reduce your taxable income. Essentially, you are getting a deal on your current year's tax bill while ramping up your retirement savings. The more you contribute to your 401(k), the more opportunities you'll have to build wealth at work over time.
Maximize your 401(k) contributions
Your annual contributions will be the heart and soul of your retirement account. If you forfeit your chance to make annual contributions, you will limit the long-term potential of your 401(k) over time. Becoming a millionaire is based on how you allocate every dollar that has your name on it.
For 2022, you can contribute up to $20,500 from your paycheck to your 401(k). After you turn 50, you can tack on an extra $6,500 as a special catch-up contribution granted by the IRS. You're not required to max out your 401(k) every year, but it's a great way to fast-track your way to millionaire status. Here are a few pointers to help you increase your 401(k) savings with ease:
- Allocate bonuses and raises to your 401(k).
- Set up a budget so you can comfortably live on less money.
- Monitor your spending habits and be intentional about purchasing decisions.
- Free up cash by paying off debt.
If your employer offers a 401(k) matching program, you might want to take them up on that deal. Check to see if your employer matches any contributions that you make to a 401(k). That's an easy way to earn more money at work that can benefit your future self.
Understand your investment options
If you want the money in your 401(k) to grow, you have to put it to work. You need to understand the types of assets you can invest in, the average rate of return, and how you can use the power of compounding to supercharge your portfolio.
Review your 401(k) plan and ask questions if something doesn't make sense. Your 401(k) may include the following investment options:
If your portfolio has a high weighting of high-quality stocks, achieving a 7% return over the long term won't be unrealistic. That's the average annual return of the S&P 500 from 1926 to 2018. If you look at the last 50 years, the average stock market return was 10%.
Based on your age, goals, and risk tolerance, you (or a trusted advisor) can determine the best mix of assets for you. You can use a calculator to determine what it takes to crush your 401(k) goals. After you know your numbers, you can develop a strategy to reach your goal before your target date.
The making of a 401(k) millionaire
Becoming a 401(k) millionaire takes patience, consistency, education, and strategy. You don't have to be rich to get started. You just need a consistent plan that can carry you through to the finish line. The increase in 401(k) millionaires during the pandemic proves that your millionaire goals are not impossible. It all starts with taking the next step to learn more about your 401(k) and maximize it.
If you are serious about your 401(k) success, contact your human resources department or benefits provider to get a copy of your company's policy. That one step will empower you to set goals and invest in your education so you can claim your spot as the next 401(k) millionaire.
