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Is Your 401(k) on Track for a Millionaire Retirement?

By Maurie Backman – Sep 11, 2021 at 7:02AM

Key Points

  • Many people aim to retire with $1 million or more.
  • It's possible to close out your career with a hefty 401(k) balance, but it'll take some planning.
  • Here's how to know if you're on the path to becoming a retirement millionaire.

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Here's how to know how likely you are to meet your financial goals.

Many people have the goal of retiring with $1 million or more in savings. But if you're an average earner, you might assume that a nest egg in the millions is out of reach.

Actually, it's possible to retire a millionaire even on an average salary. And if you're an above-average earner, it's certainly doable.

How can you know if your 401(k) plan is on track to meet that goal? Ask yourself these questions.

Smiling person at laptop raising arm

Image source: Getty Images.

1. Am I snagging my full employer match?

When it comes to growing retirement wealth, your 401(k) match could be an extremely valuable tool. Many companies that offer 401(k)s also match employee contributions to some degree, and taking advantage of that free money could help you achieve your ultimate savings goals.

Imagine your company will match contributions worth up to 5% of your salary and you earn $80,000 a year. That means you could be in line for an extra $4,000 in your 401(k) if you put in that much money from your own paychecks.

Let's take that a bit further. If you snag a $4,000 employer match for 25 years, and your 401(k) delivers an average annual 8% return during that time (more on that in a bit), then you'll actually end up with over $292,000 just from your company's contributions alone.

2. Am I maxing out my contributions or getting as close as possible?

Right now, 401(k) plans max out at $19,500 a year for workers under 50 and $26,000 for those 50 and older. If you're an average earner, maxing out your contributions may be difficult. But if you earn a six-figure salary, it may be quite doable, so your goal should be to do just that.

But even if you can't max out your 401(k), you should still aim to increase your contribution rate from year to year. Small boosts in your savings rate could make a big difference over time.

3. Am I investing my savings wisely?

In our example above, we saw $100,000 in employer contributions ($4,000 a year x 25 years) turn into almost $300,000. That's the sort of thing that's possible when you invest your 401(k) heavily in stocks.

The 8% return used above is a bit below the stock market's average, so if you invest in stocks over a decades-long window, you might easily see that sort of return in your 401(k). And while 401(k)s generally don't allow you to buy individual stocks, you can load up on index funds or even actively managed mutual funds that are stock-focused instead.

Now, let's say that between employer matching dollars and your own contributions, you have $1,000 a month going into your 401(k). If you have a 30-year savings window and score an average annual 8% return, you'll wind up with about $1.36 million to your name. But if you play it safe in your 401(k) and load up on bonds over stocks, you might see much lower returns -- and a much lower total balance.

Amassing $1 million or more in your 401(k) won't happen overnight. The good news is that, even if you've missed out on some years of savings, you can ramp up your contributions starting immediately and extend your career to catch up. While there's no rule stating that you must retire with $1 million or more in savings, reaching that goal certainly isn't a bad thing to do.

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