While the number of 401(k) billionaires dropped significantly by 33% in 2022, 2023 definitely looks more promising with reports suggesting the billionaire population will grow by 26%.
As you can imagine, this exclusive group of savers owns retirement accounts with over $1 million in balances. Account types include 401(k), 403(b), and IRA.according to the latest information Fidelity Investments dataThe mutual fund and stock trading giant has seen an almost 26% increase in the number of millionaires since the first half of 2023.
The return of America’s 401(k) billionaires is encouraging to all workers. This shows that a successful retirement savings takes patience.To Quote from John BogleAs the father of index funds and founder of Vanguard, he said, “The winning formula for investment success is to own the entire stock market through index funds and then do nothing. Just keep the course.” please.”
2022 was a tough year for retirement savers
While the market entered 2022 in good shape, the stock market performed poorly in 2022. However, the highest inflation in 40 years and the US Federal Reserve’s aggressive decision to raise interest rates have triggered a simultaneous drop in stocks, bonds and cryptocurrencies. In fact, it was Wall Street’s worst year since the Great Recession. The S&P 500 index, commonly used as a benchmark for index funds, fell about 20% in its worst year since 2008. The Dow Jones Industrial Average (DJIA) also dropped another modest 9%. The Nasdaq Composite Index plunged about 33% into a bear market.
As a result, the number of 401(k) billionaires fell by almost 33% as retirement account balances fell by 20%. Anxious investors were likely worried about 2023 as the Fed remained hawkish on inflation.
However, double-digit year-to-date gains in the Nasdaq Composite and S&P 500 led to three consecutive quarters of growth in retirement account balances.
The increase in millionaires is a noteworthy achievement
The increase in the number of 401(k) billionaires is a major achievement for American savers. By mid-year, a total of 378,000 people had more than $1 million in Fidelity 401(k) plans. This number has increased from 299,000 at the end of 2022. The average 401(k) balance was about $1.5 million, the typical person’s age was he was 59, and the planning horizon averaged 26 years.
A further 349,104 qualified as Investment Retirement Account (IRA) Millionaires, up from 280,320 at the end of December 2022.
While impressive, it fell short of the record set at the end of 2021, when the stock market completed a strong bull market. The all-time highs were about 442,000 401(k) billionaires and about 376,100 IRA billionaires.
But retirement account millionaires belong to high-end clubs. At Fidelity, only about 1.6% of his 401(k)s and his 2.5% of his IRA accounts hold at least $1 million.
Average worker performance is improving
401(k) Amounts Investors Should Include in Plans It depends on their age and situation. But in general, the average worker does better. The average balance in his 401(k) account for the first half of this year was $112,400. For the IRA it was $113,800. For the 403(b) he was $102,400.
Additionally, average balances increased year over year across all age groups. Young workers saw a significant increase in average 401(k) balances. In fact, Gen Z saw a 66% increase, Gen Y saw a 24.5% increase, and Gen X saw a 14.5% increase. Baby boomers, the oldest demographic surveyed, registered a 6.3% increase, presumably because they are less exposed to stocks and own more conservative mutual funds.
Much of our success is due to a combination of stable savings and good stock market performance, regardless of volatility. For example, some of them largest mutual fundAlong with the Vanguard Total Stock Market Index Fund (VTSAX) and the Fidelity 500 Index Fund (FXAIX), which are up about 14.6% and 15.4% respectively. Additionally, options on some plans, such as auto-enrollment and contribution escalators, help employees save sooner.
Investing to become a 401(k) millionaire
401(k) millionaires are different than most workers. Save at a higher rate and over a longer period of time. This luxury club saves 17.2% on salaries. Their employer contributes an additional 9.3% for a total savings rate of 26.5%. Only a few can match this value unless your mortgage and student loans pay off.
But following the financial habits of retirement billionaires makes sense because of their proven success.
save with high rates
Successful retirement plan investors save at a higher rate than most people. Most young workers probably won’t be able to save her 17.2% of their salary on a 401(k). But it’s wise to at least contribute enough to receive a company match. Workers should then increase the percentage to increase their savings rate as their salary rises.
Start early and be consistent
Starting early and staying on course is essential to harnessing the power of compound interest. A 401(k) or IRA account is not a get rich scheme.Doug Greenberg, President Pacific Northwest Recommendation, tells Dividend Power: “…consistently invest in 401(k)s, but to truly tap their potential, we need to maximize our contributions and fine-tune our investment choices…”
Use Target Date Funds or Index Funds
Most workers do not have time to manage their own funds due to busy schedules. It is often better to invest in a target date fund or some index fund. It has several advantages such as low cost and simplicity. Additionally, target date funds typically hold a mix of stocks, bonds and cash. The ratio shifts from a growth slant in youth to a more conservative portfolio nearing retirement.
401(k) Saver Conclusion
Becoming a 401(k) millionaire is hard, but possible. Workers need a long-term approach, saving consistently at sufficiently high interest rates to avoid short-term reactions to market ups and downs. Terry Amundson, CFP The Heights Financial“…perseverance and a well-structured investment approach form the foundation for achieving 401(k) millionaire status.”
This post was created by dividend power Syndicated by Wealth of Geeks.
Prakash Kohli is dividend power site. He is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writing can be found on Seeking Alpha, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, Entrepreneur, FXMag, and major financial blogs. He also works as a part-time freelance equity analyst and publishes a leading newsletter on dividend stocks. He was recently in the top 1.5% of financial bloggers (126 out of 8,212) in TipRanks (an independent analyst tracking site) tracking his Seeking Alpha article.