We may have any number of different goals in life. Some of them may be physical, such as living a long life or having good health. Others may include our bucket list, places in the world that we want to go and things we want to achieve in our lifetime. Another goal that is very common among people is saving money for retirement. How much do you plan on saving?
It always helps to have a milestone when a goal is set, and for many people, that milestone is $1 million. It might seem practically impossible to save about that much money but if you understand a few basics, it is much easier than you could have ever imagined. In fact, there are hundreds of thousands of ones in the United States who are already millionaires and waiting for retirement.
According to Fidelity, approximately 157,000 people have a minimum of $1 million in their 401(k) accounts. There are others who also save in an IRA and approximately 148,000 of those individuals have a minimum of $1 million. That is a total of 205,000 people in the United States who are millionaires, waiting to retire. Of that number, 2400 have at least $1 million in both a 401(k) and an IRA.
When you do any type of research, you’re going to hear a lot of tips and tricks about saving that much money. You want to know the real secret to saving $1 million in your retirement account? It can be summed up in a single word; time.
Most of the people who already have $1 million saved in a retirement account are baby boomers. In other words, they have been saving for a minimum of 30 years and the savings just keep rolling in.
According to Fidelity’s vice president of thought leadership, Katie Taylor, the most important behavior is starting your retirement savings early.
If you are a millennial that is just starting out, I have good news for you. If you are still in your 20s or 30s, you can set up a retirement account now and reach that goal a lot easier than somebody who is getting a start later in life.
Another key to saving $1 million is taking a larger chunk of your salary and setting it aside. On average, individuals who have hit the $1 million mark in their 401(k) are putting aside 24% of their annual salary. That includes both their own contributions and any contributions made by their employer. As a global average, individuals are saving 13% in their 401(k). That means that many are not going to have enough money to retire.
Chuck Cumello also weighs in on saving in a 401(k). He knows a little something on the subject because he is the CEO and president of SX financial. He says, “The beauty of the 401(k) is that it takes the emotion out of investing.”
When money is taken out of your paycheck automatically, it takes much of the guesswork out of the timing of the market. You just don’t need to worry about it.
So, How Are You Doing?
There are many baby boomers who have reached the $1 million mark in their 401(k) at Fidelity. They still only make up about 3% of all baby boomers.
The Investment Company Institute has a rather interesting statistic. In 2016, households between the ages of 55-64 saved an average of $120,000.
As you would imagine, a higher salary typically means higher savings. When a baby boomer household made more than $171,000 annually, they had already saved a median of $600,000. If a household earns less than $35,000 a year, they have a median of $18,000 set aside. Those statistics include both IRAs and 401(k)s.
You Can Reach the $1 Million Mark
You may find that it is not necessary to have $1 million set aside for your golden years. What you need to consider, however, is that you will likely need 10 times your annual salary. You can use an online calculator to determine how much you might need.
According to Cumello, there are 3 common traits that are seen among those who have a large 401(k).
1. They Started Early
If you start at 25, you’ll need to set aside $650 a month to reach the $1 million mark. For those who wait until they are 35, however, $1,200 per month will need to be set aside.
2. Aim For Saving The Maximum
Determine how much you will need to set aside to get the full company match. Then look for the savings necessary for the federal limit. Currently, it is at $18,500.
3. Keep an Eye on Your Investments
Does your 401(k) offer a low-cost fund investment option? You can diversify your portfolio by using it. Be sure you don’t select only one stock so you aren’t putting all of your eggs in one basket.