Investments can grow powerfully over time. Image: Pixabay

It's easy to assume that if you regularly contribute to your 401(k) and maybe an IRA, too, that you'll build yourself a better retirement -- but that it won't be a spectacular one. If you're dreaming of accumulating a million dollars, for example, it can seem unlikely that you'll ever get there with your retirement accounts. But guess what -- you can become a millionaire, through your 401(k).

Many people have actually done so. Fidelity Investments, which manages 401(k) plans for many companies, recently released some interesting data revealing that some 72,000 workers in Fidelity accounts have balances of $1 million or more in their 401(k)s, twice as many as in 2012. About half of them had balances of $1 million to $1.25 million, and 9% had balances topping $2 million.

Interestingly, though, and sadly, that's just 0.56% of their 13 million plans: The average account holder saving for retirement in a 401(k) had a balance of just $91,000 -- quite a different situation.

The database of the Employee Benefit Research Institute supports this data. It covers 26.4 million savers and shows that just 0.42%, or close to 111,000 account holders, were millionaires.

Accumulating a million dollars is far from impossible. Image: Jericho, via Wikimedia Commons

Building a million
How is it possible to accumulate a million dollars or more in a 401(k) account? Well, solid annual gains in the stock market over the past few years have certainly helped. The market did crash in 2008, with the S&P 500 plunging 37%, but that index grew 26% the following year and has kept growing, as typically happens after occasional (and inevitable) crashes.

The table below demonstrates how an account's value might have grown, without any additional dollars being contributed to it. It shows how a $1,000 investment at the beginning of 2010 would have grown, if it had been parked in an inexpensive S&P 500 index fund:


S&P 500 Return*

Investment Grows To...
















*as measured by the SPDR S&P 500 ETF

See? It more than doubled over those five years. If you'd started 2010 with $150,000 in your account, you'd have ended 2014 with more than $306,000. A $400,000 account would have become $818,000. If you'd added more money along the way, as typically happens and should happen with retirement accounts, then you'd have even more money.

Why some make it and others don't
So, why don't many people get to that million dollars? Well, much of the explanation lies in how aggressively they save and invest in their accounts. The Fidelity data shows that the average saver contributed about 12.2% of salary in 2014, including matching funds from their employer. The average millionaire, meanwhile, socked away 16% of their income, a significant difference.

It's worth noting that while we can only sock away $5,500 in IRAs per year in 2014 and 2015 (plus a $1,000 "catch-up" allowance for those 50 and older), the contribution limits for 401(k) plans are far more generous, capped at $17,500 (plus a $5,500 catch-up contribution) in 2014 and $18,000 (plus $6,000) in 2015. Thus, those who want to be aggressive with their 401(k)s can be. And if you're lucky enough to be part of a couple, you're looking at possible annual contribution totals in 2015 of $36,000 to $48,000.

The Fidelity millionaires also seem to appreciate that over the long haul, stocks tend to outperform bonds and most other alternatives, as they had about 72% of their portfolios invested in stocks. Those investing more conservatively will likely achieve slower growth. It's true that 401(k)s usually restrict your investment options to a handful of mutual funds, but there's often a simple S&P 500 index fund among them, offering inexpensive access to most of the U.S. stock market.

Future millionaires save and invest more aggressively.

Finally, it's worth noting that most of the folks with fat 401(k) balances are not whippersnappers. Their average age is close to 60, reflecting many years of diligently socking money away. They haven't gotten rich very quickly, but have still gotten rich.

You can do that, too, if you have a plan and enough discipline to stick with it over many years. How much you'll need to contribute each year depends on how much you earn and can sock away in retirement accounts, how effectively you invest that money, and how long you have until you plan to retire. You can use an online calculator to help you determine how you can get to a million. For example, if you start with nothing and contribute $15,000 annually for 25 years, earning an average annual return of 8%, you'll end up with $1.2 million.

It can seem hard to think of how you might be able to save more, but there are actually lots of ways. For example, look into credit cards where you can earn cash rewards. American Express has some cards with 6% back on groceries and 3% back on gas, and 1% back on most purchases. If you charge a lot, you may be able to generate hundreds of dollars a year that way. (For example, if you have a large family and spend $200 per week on groceries, you might net $624 in cash back in a year.) If you charge $2,000 per month on a card that pays you 2% back, on average, you can collect $480. If you take on a part-time job for a few years, working 15 extra hours per week and earning $15 per hour, that's almost $12,000 annually, pre-tax. That kind of additional income can make a 401(k) a lot easier to fund.

Shockingly, a study by the Center for American Progress reported that 31% of Americans have no retirement savings at all and no pension. Those folks face a very difficult future, unless they are able to make some big changes fast. You may not be in such a dire situation, but know that making some changes of your own can elevate you into that small percentage of savers who accumulate $1 million by retirement.