We talk and have talked a lot about retirement savings in this space, and usually when we do it’s not the most promising news. Usually, we’re telling you about how the average American is likely to be short on their retirement savings and how you should be investing in different platforms for the benefit of your financial future.
We’re going to switch things up a little bit in this post, as we’re happy to (finally?) report some good news as it pertains to retirement savings. According to a report from Fidelity, there are more than 200,000 401K retirement plans with a balance of at least $1 million in savings.
How Does This Apply to You?
We know what you’re thinking: Is this really that significant? The answer is “yes,” and it’s for several reasons. One, Fidelity is the largest provider of 401K retirement plans in America. And two, this number of 401K millionaires is up about 7 percent from one year ago, proof that more Americans are taking retirement investments seriously.
Furthermore, the Fidelity report indicates that about one-third of all its 401K savers increased their contribution rate over the last 12 months, making its average contribution amount nearly 9 percent. Fidelity says that’s the highest average that it has ever seen — and it doesn’t include any sort of company match. For further reference, the average company match is about 4.6 percent, making for a grand total of about 13.5 percent.
This is great news, as it’s a clear indication that Americans are taking retirement savings much more seriously. And while an increase in contributions has surely been helped by the strong economy and Americans taking advantage of the market while it’s so strong, this is positive news. For context, the total contributions between consumer and company 10 years ago was 11.8 percent.
Retirement Savings and You
Before we get too deep into the weeds with retirement savings strategies to help you become among the 401K millionaires club, it’s first worth noting that everyone’s situation is different. Some might be content with aging in place near family and friends, while others might eye a vacation home or several vacations each year. Obviously, what you need to save will depend on what you want to do after you punch out for the final time.
Generally speaking, however, most Americans think that it’ll take about $1.7 million in retirement savings for them to comfortably retire. So while $1 million is a great achievement, it could be only a start.
On that note, what can you do to ensure that you reach that magic $1.7 million number that many believe is the best goal to shoot for. Here’s a look:
- Shoot to save 10 times your income by retirement age: If you’re not sure if the $1.7 million goal is the right one to set your sights on, try to come up with what your income is likely to be when you’re ready to retire, then multiply it by 10. That’s likely what you’re going to need to live comfortably in retirement. In order to reach this, it’s recommended to have twice your income saved when you’re 35, four times your income saved by 45, eight times your income by 60, etc.
- Get on an auto-escalation plan: If you’re able to opt into a retirement plan that automatically increases your contributions by 1 to 2 percent each year, do it. It can be easy to put this off or tell yourself you’ll increase your contributions the following year.
- Max out your annual contributions if you can afford to do it: According to Charles Schwab, the average American contributes $8,788 toward their 401K each year. Considering that the IRS’ maximum 2019 contribution is $19,000, this is only a little more than half of the allowed limit. In 2020, the maximum limit is increasing to $19,500. Bottom line: If you can afford to contribute more, do it.
Are you among the 401K millionaires? And if you aren’t, do you know how to get there?