The Age When You Are Most Likely to Become a 401(k) Millionaire

January 17, 2018

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2017 was an epic year when it came to people achieving financial success. Everyone around me seemed to either be reaching FIRE or about to reach FIRE in the next year or two. This isn’t that surprising when you consider that the stock market rose over 20% in 2017. In fact, now 1 of out 20 Americans are millionaires.

I recently had a conversation with a friend. He shared that he would retire with over $1 million in his 401(k).

I was shocked to hear this. While it’s fairly common to hear of people becoming millionaires in the DC area, I was not expecting him to tell me that his 401(k) would have over $1 million in it.

Of course, I realize that a million dollars isn’t what it use to be. However, when you consider that 44% of the U.S. population does not have $400 saved up for an emergency, reaching $1 million is still quite the feat.

TSP Millionaires

In fact, it’s pretty rare in the federal government. As of August 2017, there were only 16,475 Thrift Savings Plan (TSP) millionaires (out of 5.1 million TSP participants). Yes, that is a very tiny percentage— 0.3% to be exact. And this was a big jump from 2015, when there were only 2,675 TSP millionaires. Clearly, the number of TSP millionaires is a small subset of the 5.1 million TSP participants.

After that conversation, I was curious to see when the typical 401(k) millionaire reaches that milestone. According to a Fidelity Investment report, which reviewed over 15 million Americans who have accounts with them, they reported 133,000 401(k) millionaires.

On average, women achieve the status of 401(k) millionaire at the age of 58.5. Meanwhile, the average man achieves this status at 59.3. Interestingly enough, over the last 12 years, the number of women that have amassed $1 million or more in their 401(k) account has more than doubled. Nearly 20% of 401(k) millionaires are women, up from just 10% in 2005.

What does it take to become a 401(k) millionaire?

Fidelity found that those who opened 401(k) accounts in their 20s typically took 30 years of working and saving in order to hit the $1 million milestone.

The typical 401(k) millionaire saved over 20% of their income and invested nearly 80% of that in stocks, with women holding 76% and men holding 77% in the stock market.

Whoever said that women are too conservative when it comes to investments should take a look at some of the figures above.

On top of that, the average income for a 401(k) millionaire was $287,700 for women and $354,600 for men.

Making Less than $150,000

What if you don’t make anything close to those figures? You may assume that you’ll never become a 401(k) millionaire. In the words of Lee Corso, “Not so fast my friend.”

Fidelity found that even if you earn less than $150,000, consistent saving and investing in the stock market were the keys to reaching 401(k) millionaire status.

For earners making less than $150,000, women earned $117,000 on average and men made $118,800 on average. Women, on average, saved a little over 18% of their income, with an employer match of nearly 7%. In contrast, men who earned less than $150,000 had an annual savings rate of nearly 23%, when combined with the employer match. For both men and women, it took nearly 30 years to become 401(k) millionaires.

How can you become a 401(k) millionaire?

If you’re young, take advantage of time on your side. Compound interest is very, very helpful. According to Fidelity, Millennial investors (20s – mid 30s), on average, are saving 10.2% in their 401(k), including their employer match. Meanwhile, Gen Xers (late 30s – early 50s) save, on average, 11.7%.

While these are healthy contributions, they pale in comparison to the amounts that the average 401(k) millionaire saves.

Do you need a large salary to become a 401(k) millionaire?

Take a look at this response from the Washington Post:

“Linda has close to $1.5 million and makes less than $60,000 a year. She’s been at her job for 42 years…”I began with 5 percent, and as I was there longer, every year I got a raise, and I would take 1 percent of the raise and put it in retirement. Since the rest of the increase went into my pocket, I never missed it.”

As you can see, compound interest is a powerful tool. Since 1966, the S&P 500 has averaged an annual return of 11%. However, even if the S&P 500 doesn’t return that same amount over the next 50 years, you can rest assured knowing that you should have a healthy return if you invest diligently.

While becoming a 401(k) millionaire is a great goal, the bigger goal should be determining your Retirement Number. It doesn’t matter if you have saved up $1 million for retirement if you plan to spend more than that.

If you haven’t gone through my Reaching FIRE course, I’d encourage you to take a look and start this New Year off right.

So readers, are you surprised by the age of 401(k) millionaires? Do you know any 401(k) millionaires? Share your thoughts below.