Investing in a 401(k) is one of the easiest and most effective ways to save for retirement, and with the right strategy, you could potentially build a nest egg worth $1 million or more.
There are some tricks to making the most of this type of account, though. If your goal is to become a 401(k) millionaire, these three "secrets" can help you get there.
1. Matching contributions are a game-changer
Not all 401(k) plans offer matching contributions, but if yours does, it's wise to take full advantage of them. The employer match is essentially free money, and it can instantly double your savings with next to no effort on your part.
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The average match is 3.5% of a worker's wages, according to data from the U.S. Bureau of Labor Statistics. The median U.S. income as of 2022 is around $55,000 per year. A 3.5% match, then, would amount to $1,925 per year, or roughly $160 per month.
While that may not sound like much, it adds up. If you're earning a 10% average annual return on your investment (which is in line with the market's historical average), that $160 per month could amount to nearly $316,000 after 30 years.
These figures are also only accounting for the employer match itself. Once you add in your own contributions, you'd have at least double this amount. And if you're earning salary increases as you advance in your career, that will likely increase how much you're able to earn in matching contributions.
2. Consistency is more important than maxing out your account
In 2024, the maximum you'll be able to contribute to your 401(k) is $23,000 per year. Few workers will be able to contribute that much, though, and that's OK. Investing consistently is more important than maxing out your account.
Time is your most valuable resource when saving for retirement, and investing even a little each month can go further than putting off saving until you can afford to contribute more.
For example, say you could afford to invest $200 per month now, or wait 10 years and then begin investing $400 per month. Assuming you're earning a 10% average annual return on your investments, here's approximately how your savings would add up over time in both scenarios:
| Number of Years | Total Savings: Investing $200 per Month Now | Total Savings: Investing $400 per Month Later |
|---|---|---|
| 10 | $38,000 | 0 |
| 20 | $137,000 | $76,000 |
| 30 | $395,000 | $274,000 |
| 40 | $1,062,000 | $790,000 |
Data source: Author's calculations via investor.gov.
If you can afford to invest enough to max out your 401(k), that's fantastic. But if not, don't let that deter you from saving whatever you can now. The earlier you get started (and the more consistently you save), the easier it will be to reach $1 million or more.
3. A long-term outlook is key
It takes time to start seeing progress when saving for retirement, so a long-term outlook is key. Building a retirement fund worth $1 million or more often takes several decades, but the more time you give your money to accumulate, the faster it will grow.
Perhaps the best way to become a 401(k) millionaire, then, is to start saving as early in life as you can, and be prepared to continue investing for as long as possible.
There's no easy or safe way to become a millionaire overnight. However, it is an achievable goal with the right strategy. By taking advantage of matching contributions, saving consistently, and keeping a long-term outlook, you'll be on your way to building a million-dollar retirement fund.
