Apparently, very few people are saving for their retirement. However, the number of new 401(k) millionaires is increasing at a fast rate. Though the 401(k) club is small, the number of employees with over $1 million rose to 157,000 in quarter 1 of 2018. This increase equates to 45% as compared to last year. But joining the millionaire status takes some time. A majority if 401(k) millionaires have been saving for the past 30 years.
Most of these 401(k) millionaires reaped massive benefits from the recent market performance. This was achieved after employees applied recommendations regarding how to maximize their savings. Among the recommendations are making sufficient contributions matching their company profiles, not cashing savings when switching jobs, and investing their savings. Nowadays, 76% of 401(k) millionaire funds reside in equity mutual funds.
Presently, employees can contribute $185,000 annually to401(k) and Thrift Savings Plans (TSP). A special provision lets those aged over 50 contribute anadditional$6,000 to an employer-sponsored retirement plan. By the end of the first quarter, the number of funds in IRAs and workplace savings rose by 9% to $299,600 from $275,700 in 2017. On the other hand, average balances in 401(k) plan dropped by 1% to $102,900 in Q4 of 2017. Nonetheless, average balances over several years remained by 8%. Additionally, analysis established that:
- In the past 10 years, workers 401(k) savings balances equaled$290,000 as compared to $250,500 in 2017.
- Employees who have saved for 15 years had an average balance of $379,600 as compared to 2017’s balance of $330,200.
Plus, the number of TSP millionaires increased too. New data indicates that this figure rests at 23,962 from 3,272 in January of 2016. In turn, these millionaires are characterized by two factors: long-term investments and investments in stock indexed C and S funds. Over time, they continue accumulating more C and S funds even during market recessions. Plus, some workers leverage the 5% matching advantaged from stock agencies.
Evaluating collected data, millennials should be investing more to help them acquire the millionaire’s club status. Accumulating $1 million in savings often require that one starts saving early during their career. Why is that so? Because of restrictions imposed on the number of funds one can save in a whole year in 401(k) combined with sharp downturns of a bearish market, for instance, the 2008 to 2009 meltdown. So saving early on means more money. Even so, a million dollars in savings doesn’t give most people a sense of security.