Fidelity recently announced that the number of Fidelity “401(k) millionaires” (customers with $1 million or more in their 401(k) accounts) just reached an all-time high. As of Q1 2024, 485,000 Fidelity customer 401(k) accounts have $1 million or more.
Even if your current retirement savings fall well short of $1 million, we all can get inspired by the example of Fidelity 401(k) millionaires. Let’s look at the data and learn from Fidelity customers how to save $1 million for retirement.
1. Use your workplace retirement plan (if you have one)
Not every employer offers a workplace retirement plan, like a 401(k) or other tax-advantaged group retirement savings program. Some people have to save for retirement on their own, with an individual retirement account (IRA) or taxable brokerage account.
But having a 401(k) or other workplace plan seems to deliver extra advantages when saving for retirement. The Fidelity survey found that the median 401(k) account balance was $28,900 compared to $15,000 for the median IRA. Since the typical Fidelity customer has almost twice as much money saved in a 401(k) vs. an IRA, this could be a sign that saving for retirement with a 401(k) is easier. Many people contribute to their 401(k)s automatically with every paycheck, without having to think about it or make account transfers.
But even if you’re a passionate 401(k) saver, you don’t have to choose between a 401(k) and an IRA. If you have enough extra cash flow to save in both accounts, especially if you qualify for tax advantages with an IRA, you should try to use a 401(k) and an IRA.
2. Get your employer 401(k) match (if offered)
Another advantage of using a 401(k) to save for retirement is that many employers offer a 401(k) match. For example, your company might match 50% of the first 5% of your salary that you contribute to your 401(k) — this is a good way for companies to encourage people to save for retirement while providing a valuable employee benefit.
Fidelity’s data showed that as of Q1 2024, the combined 401(k) contribution from employees and employers that offer a 401(k) match was an average of 14.2%. This is a healthy percentage of salary to save for retirement, and it’s a good sign that more Fidelity customers (and their employers) are saving aggressively for the future.
If you don’t get your employer 401(k) match, you leave money on the table. Even if money is tight and you can’t invest as much as you’d like, at least try to adjust your paycheck so you contribute enough to your 401(k) to get every dollar of your employer match.
3. Start saving for retirement at a young age
It takes time to become a millionaire. Fidelity 401(k) millionaires are not fresh out of school and just entering the workforce; they are established in their careers and have been participating in their workplace retirement plans for an average of 26 years. If you want to get $1 million of retirement savings, starting from zero, you’d have to save about $1,043 per month for 26 years (assuming 8% average annual returns on your investments).
Few people can afford to sock away over $1,000 per month for retirement. But if you’re young, you don’t need to save that much. People in their 20s and 30s don’t have “only” 26 years to save for retirement; they have a much longer time horizon.
If you’re 25 years old in 2024, you have 42 years until Social Security retirement age. Having that much time for your savings to grow with the power of compound interest means you’d only need to save about $274 per month to get $1 million of retirement savings by age 67 (assuming 8% average annual returns).
4. Try to save 15% (or more) of your income for retirement
A much-quoted rule of thumb in retirement planning is that you should try to save 10% of your salary for retirement, but 15% is even better. Fidelity 401(k) millionaires have an average contribution rate of 17%. To match that rate, if your income is $100,000, you should save $17,000 annually for retirement.
Bottom line
Even though it’s good news that the number of Fidelity 401(k) millionaires has grown, the typical American’s 401(k) might still be underfunded, with a $28,900 median balance for Fidelity 401(k) accounts. Take advantage of your employer 401(k) match, and use a traditional IRA or Roth IRA to save extra money with tax benefits if you qualify.
And whether or not you have a 401(k) at work, consider opening a taxable brokerage account to save and invest additional cash for the future. By investing just a few hundred dollars per month and leaving that money alone to grow for many years, becoming a 401(k) millionaire is more possible than you might expect.
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