In a world where the allure of quick riches from cryptocurrency and meme stocks captures the imagination of many, the path to true wealth remains a testament to patience and steady investment. New data from Fidelity Investments reveals that the number of 401(k)-created millionaires has reached an unprecedented high, underscoring the value of long-term financial planning.
The first quarter of 2024 saw the number of individuals with 401(k) accounts exceeding $1 million soar to 485,000, marking a 43% increase from the same period last year. Fidelity, one of the largest administrators of workplace retirement accounts in the United States, offers a detailed quarterly analysis of 45 million individual 401(k), 403(b), and IRA retirement accounts. The findings are a testament to the benefits of disciplined, long-term investment.
Average account balances also hit new highs, reflecting a broader trend of robust retirement savings. The average 401(k) balance rose to $125,900, up 6% from the previous quarter and 16% from the previous year. IRA balances climbed to $127,745, showing a 10% increase from the fourth quarter of 2023 and a 17% rise over the past year.
Although the proportion of 401(k) millionaires is relatively small—about 2% of all account holders—there is much to learn from their investment strategies. These individuals exemplify the virtues of patience and consistency in their financial habits.
One of the key traits of these millionaires is their long-term commitment to their retirement plans. On average, they have been investing in their 401(k) accounts for 26 years, accumulating an average balance of $1.58 million. This group predominantly consists of Generation X (born between 1965 and 1980) and Baby Boomers (born between 1946 and 1964), with an average age just shy of 59 years.
A significant factor in their success is their contribution strategy. These investors consistently contribute to their plans, maintaining an average contribution rate of 17%. The recent increase in contribution limits allows for even greater potential savings. For 2024, employees can contribute up to $23,000 to their 401(k), 403(b), and most 457 plans, including the federal Thrift Savings Plan. Those aged 50 and over can take advantage of a catch-up provision, raising the total limit to $30,500.
Another crucial element is taking full advantage of employer contributions. According to Fidelity, 81% of workers with 401(k) and 403(b) plans received some form of employer contribution, either through company match or profit-sharing, over the past year. The most common match structure is a dollar-for-dollar match on the first 3% of contributions, followed by 50 cents on the dollar for the next 2%.
To maximize their savings, many employees utilize automatic increase programs offered by their employers. These programs can incrementally boost contribution rates by 1 or 2% annually, or whenever an employee receives a raise, easing the financial adjustment and promoting higher savings rates over time.
The Fidelity report highlights that record-high contribution levels and favorable market conditions have pushed average account balances to their highest levels since the fourth quarter of 2021. In the most recent quarter, the total average 401(k) savings rate reached a record 14.2%, driven by combined employee and employer contributions.
In conclusion, the journey to becoming a 401(k) millionaire is marked by strategic, disciplined investing rather than quick, speculative gains. By maintaining consistent contributions, leveraging employer matches, and exercising patience, investors can build substantial retirement savings over time. As Fidelity’s data shows, the rewards of this steady approach are both tangible and significant, offering a reliable pathway to financial security.
