401(k)s

Secrets of the 401(k) Millionaires

The bull market helped boost balances, but these workers also save more and avoid borrowing against their savings.

The number of 401(k) accounts with a balance of $1 million or more rose to a record 168,000 in the second quarter, an increase of 41% from a year earlier, according to Fidelity Investments, the nation’s largest plan administrator. Although that’s only a small percentage of 401(k) participants, there were other positive developments. The average 401(k) account balance rose 6% from a year earlier, to $104,000, and the average balance in individual retirement plans, which allow workers to save even if they don’t have a workplace plan, rose to $106,900, up nearly 7%.

The bull market contributed to the growth, but it wasn’t the only factor, says Meghan Murphy, a vice president at Fidelity Investments. Contributions are up, too. The average savings rate, which includes employee savings and company matching funds, was recently 13%, up from 12.5% in 2008. The 401(k) millionaires save even more, says Murphy. The average savings rate for those workers is 17%, and some millionaires save up to 25%, she says. Other characteristics of 401(k) millionaires:

They’re in it for the long haul. Most 401(k) millionaires have been contributing to their plans for 28 to 30 years, even if they’ve changed jobs.

They’re big on stocks. The 401(k) millionaires typically have 75% to 80% of their savings in stocks, Murphy says. Stocks have historically outperformed other types of investments.

They avoid taking out loans. While most companies allow workers to borrow from their 401(k) plans, loans can put a serious dent in your nest egg. Many plans bar workers from contributing to their accounts until they have repaid the loan. And the money you borrow isn’t invested, which means your account won’t grow as much as it would have if you hadn’t taken out a loan. Fidelity says 20.5% of plan participants had an outstanding loan in the second quarter, compared with a high of 23% in the third quarter of 2013.

Kenneth Bazinet (seated) aboard Air Force One.

K11-AHEAD.3.indd

Getty Images

Most Popular

Will Your Stimulus Check Increase Your Tax on Social Security Benefits?
Coronavirus and Your Money

Will Your Stimulus Check Increase Your Tax on Social Security Benefits?

The answer to this question comes down to whether your stimulus check increases your "provisional income."
March 1, 2021
Third Stimulus Checks Are One Step Closer to Reality – How Much Will You Get?
Coronavirus and Your Money

Third Stimulus Checks Are One Step Closer to Reality – How Much Will You Get?

The House passed President Biden's $1.9 trillion stimulus package. While the bill faces hurdles in the Senate, the provisions authorizing another roun…
February 27, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021

Recommended

8 Insurance Products You May Not Need
Financial Planning

8 Insurance Products You May Not Need

You may be paying for insurance, such as long-term disability or product warranties, that is potentially unnecessary.
February 26, 2021
Roth IRA Basics: 11 Things You Must Know
Financial Planning

Roth IRA Basics: 11 Things You Must Know

A Roth IRA can be a great way to save for retirement since the accounts have no required minimum distributions and you withdraw the money tax-free.
February 25, 2021
33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
February 24, 2021
Buying a Burial Plot Is a Grave Decision
Financial Planning

Buying a Burial Plot Is a Grave Decision

Thinking about buying a burial plot can be uncomfortable but making this purchase ahead of time has its advantages, including potentially saving you m…
February 17, 2021