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It's Not Too Late to Start Saving for Retirement

It's Not Too Late to Start Saving for Retirement

| May 17, 2019

Is it Possible to become a 401(k) Millionaire?

With the number of large lottery jackpots showing up, we often let our minds wander to what we would do with those millions. Would you quit your job, would you buy a new house, would you travel, would you take care of your family, or would you donate to a local charity?  No matter how hard you try to think about it, it won’t change your chances of winning that big lottery.

So, what does that mean for the rest of us in our quest to become a millionaire? Is it possible to become a millionaire in your 401(k) by saving early and often?

In theory, the idea is simple:

  1. Start early
  2. Max out what you can put into the account
  3. Find an employer with a generous match and profit sharing
  4. Get comfortable with an investment plan and get out of the way

For 2019, the maximum that you are allowed to put into a 401(k) is $19,000 - not including any employer match. Here are approximate average annual returns that you would need to have on your investments, assuming a $19,000 annual contribution and depending on the age at which you start investing, to potentially reach one million dollars by age 65:

  • Age 30- 2.3%
  • Age 35- 3.6%
  • Age 40- 5.5%
  • Age 45- 9%
  • Age 50- 15.5%

It’s Not Too Late to Start Saving for Retirement

It isn’t rocket science to understand the importance of starting early - but not many 30 year olds have the ability to save $19,000 a year. However, the point is made that if you do start early, it doesn’t take a huge rate of return to potentially grow your nest egg to a large amount by the time you are 65 years old. On the flip side, it also shows you how tough it is if you start late.  So, where does that leave most people? In looking at those numbers it would be easy to say, “I can’t save that much,” or, “it’s too late.” So, what is the solution? Just get started, and review it often.

There is so much focus on the rate of return needed in the pursuit of millionaire status, but the real differentiating factor may just be to get out of the blocks and keep running. Few people just starting their careers can save $19,000. But, even starting with just $2,500 per year and increasing it by $100 a month until you reach the max could help get you to millionaire status by age 65 even with a relatively low average annual return.

Saving for retirement is a goal for many, but for some it seems so far off. For others, it doesn’t seem like a possibility. It just takes a little investment of your time to see where you are and what changes you can make to see a difference down the road.  

Investments are not guaranteed and are subject to investment risk including the possible loss of principal. The investment return and principal value of an investment account will fluctuate so that when redeemed, it may be worth more or less than the original investment.

The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. The examples do not represent any specific product, nor do they reflect sales charges or other expenses that may be required for some investments.  

This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions.