Retirement account balances are at a record high right now, with many workers on track toward millionaire status. According to first-quarter retirement data from Fidelity Investments, the average 401(k) balance among Fidelity account holders is $125,900 -- which is up 16% compared to this time last year.
But there's also a record-breaking number of 401(k) millionaires. Fidelity revealed that there are currently around 485,000 accounts with a balance of $1 million or more, as reported by Bloomberg, which is up by 15% from the fourth quarter of 2023.
Retiring a millionaire may not be easy, but there's a simple savings hack that can increase your odds of reaching this prestigious milestone: Start saving as early in life as possible.
Image source: Getty Images.
The millionaire-making savings trick
Building wealth often involves investing a substantial amount of money each month. But if you can start saving earlier, reaching $1 million or more is far more attainable.
This is thanks to compound growth, a powerful investing tool that involves earning returns on your entire account balance -- both your original investment and the returns you've earned so far. Compound growth can have a snowball effect on your savings, helping you earn exponentially more over time.
Most investment accounts earn compound earnings, including 401(k)s, traditional IRAs, and Roth IRAs. All you need to do to take advantage of it is contribute to your retirement fund consistently and give your money as much time as possible to grow.
How much does it take per month to reach $1 million?
With enough time, it takes less than you might think to build a million-dollar nest egg. In some cases, just a couple hundred dollars per month could get you to $1 million by retirement age.
Historically, the stock market itself has earned an average rate of return of around 10% per year. Depending on where you're investing, you could earn higher or lower returns over time. For simplicity's sake, though, let's assume your retirement fund is earning a 10% average annual return in line with the market.
At that rate, here's approximately how much you'd need to invest each month, depending on how many years you have until retirement:
| Number of Years | Amount Contributed per Month | Total Savings |
|---|---|---|
| 20 | $1,500 | $1.031 million |
| 25 | $850 | $1.003 million |
| 30 | $525 | $1.036 million |
| 35 | $325 | $1.057 million |
| 40 | $200 | $1.062 million |
Data source: Author's calculations via investor.gov.
The longer you wait, the more difficult it becomes to reach $1 million. Even five years can make an enormous difference, resulting in needing to invest hundreds of dollars more per month to reach your goal.
If you're off to a late start or can't afford to invest much right now, that's OK. It's still better to contribute whatever you can and then see if you can boost your savings rate later. It's always possible to save more down the road, but you can't get this valuable time back.
There's no safe way to earn $1 million in the stock market quickly, but with enough time, it's simpler than you might think to retire a millionaire. By taking full advantage of compound growth and the power it has to grow your savings, you'll be on your way to a more financially secure retirement.
