Thanks to the unrelenting rise in the stock market since 2009, there’s now a trend on social media to share your 401k balance, especially if it’s over a million bucks. Yes, being a 401k millionaire is now a real status thing!
Despite the distastefulness of bragging, just the fact that more people are talking about saving for retirement via their 401k is a good thing. There are a record number of 401k millionaires today.
Make no doubt about it. Being a 401k millionaire is very impressive. With the maximum contribution limit at $19,500 for 2021, it will take a while to become a 401k millionaire with such a low contribution maximum.
When I was first able to contribute to a 401k in 1999, the maximum contribution limit was only $10,000. Check out the chart below for details.
Sadly, if I would have stayed at my job until age 40 in 2017, I could have become a 401k millionaire. Alas, I left in 2012 at age 34. It wasn’t until mid-2021 at the age of 44 did my rollover IRA grow into $1 million.
When You’ll Become A 401k Millionaire
Given we know the various portfolio returns based on asset allocation in my post, How Much Investment Risk You Should Take In Retirement, one can simply do a little math to figure out roughly when someone will become a 401(k) millionaire.
The assumptions to 401k millionaire status are: if they are starting with $0, max out their 401(k) this year and every year after, and return the average annual return of the portfolio composition since 1926.
Here is the time it would take to become a 401k millionaire:
100% Equity Allocation (10.2% historical return): 401(k) millionaire in 18 years.
80% Equity / 20% Fixed Income (9.5% historical return): 401(k) millionaire in 19.5 years.
70% Equity / 30% Fixed Income (9.1% historical return): 401(k) millionaire in 19.7 years.
60% Equity / 40% Fixed Income (8.7% historical return): 401(k) millionaire in 20.5 years.
50% Equity / 50% Fixed Income (8.3% historical return): 401(k) millionaire in 21 years.
40% Equity / 60% Fixed Income (7.8% historical return): 401(k) millionaire in 21.5 years.
30% Equity / 70% Fixed Income (7.2% historical return): 401(k) millionaire in 22.2 years.
20% Equity / 80% Fixed Income (6.6% historical return): 401(k) millionaire in 23 years.
100% Fixed Income (5.4% historical return): 401(k) millionaire in 25.5 years.
100% Cash (1% assumed return): 401(k) millionaire in 44 years.
Related: I Could Have Become A 401k Millionaire By 40 Had I Kept My Job
401k Millionaire Chart
If you prefer a handy dandy chart, the below chart shows when you will be a 401k millionaire based on various portfolio allocations and historical return assumptions.
It is my opinion that everybody who starts maxing out their 401k for the next 20 years will become a 401k millionaire.
If you’re unsure about the right portfolio allocation, you can see my proper asset allocation of stocks and bonds by age. My guide provides a risk-appropriate way for you to invest your public investment portfolio to help you achieve financial freedom.
Of course, historical returns cannot guarantee future returns, but after a 10-20 year period of investing in your 401k, your average annual portfolio return will likely begin to mimic the historical averages. Further, if your company provides a generous 401k match or profit sharing plan, then it is likely you will become a 401k millionaire sooner.
For those readers with more than $0 in your 401k, simply find an online compound interest calculator and input your data for your specific results. The good thing is, all the numbers above can be considered the maximum longest amount of time it will take to get to 401k millionaire status in a normal market.
Let’s say I’m 40 years old with $500,000 in my 401k and will max it out every year. I’ve got a 70% Equity / 30% Fixed Income portfolio and expect to earn 9.1% a year based on historical averages.
Using a compound interest calculator, I’ll simply input my current principal, annual addition, interest rate, plus a guess number in the Years to Grow field. When the future value equals roughly $1,000,000, you’ll know about how long it will take for you to achieve 401k millionaire status.
Related: The Number Of Millionaires In The World And By Country
The Key To Becoming A 401k Millionaire Is Longevity
I worked for 13 years for two employers and got my 401k balance up to ~$400,000. But once I left my job in 2012, I rolled over my 401k to an IRA. If I worked for seven or eight more years, I probably would achieve a $1,000,000 401k balance due to strong returns and great company profit sharing. But alas, I’m not a 40(k or even a rollover IRA millionaire.
The key to 401k millionaire status is being able to work at an employer with a great 401k plan for as long as possible. The year before I left my employer, I was receiving $20,000 – $25,000 a year in company profit sharing. Not staying for a couple years longer was a 401k mistake and an early retirement regret.
Therefore, before you decide to leave your cushy job, please first calculate what you are forgoing in company benefits. The same goes for people who are contemplating leaving higher paying, stable jobs to go work for startups which may have no 401k plan or most definitely have no 401k matching benefit since most startups are loss making.
Recommended 401k Amounts By Age
Let’s review my 401k savings targets by age and see when various age groups of savers may become 401k millionaires if they are able to work at a job with a 401k plan for several decades.
Based on my 401k by age estimates, older age savers (50+) should be able to become 401k millionaires around age 60 if they’ve been maxing out their 401(k) and properly investing since the age of 23. If not, then best of luck with Social Security, a paid off house, and hopefully after-tax investment accounts.
Middle age savers (35-50) should be able to become 401k millionaires around age 50 if they’ve been maxing out their 401k and properly investing since the age of 23. I’m expecting to be a 401k millionaire when I turn 50 in 2027 by contributing to a Solo 401k plan.
Younger age savers (20-34) should be able to become 401k millionaires around age 40 if they’ve been maxing out their 401k and properly investing since the age of 23.
Becoming a 401k millionaire just takes time and discipline. You will be surprised about the power of compounding once you accumulate a decent amount of assets.
Loading ...Treat Your 401k As An Insurance Policy
According to Vanguard and Fidelity, the average 401k plan balance is about $120,000 in 2021 and the median 401k plan balance is about $35,000. If you get to 401k millionaire status, pat yourself on the back.
The funny thing about your 401k is that it doesn’t really matter if you have millions in your account. You can’t tap the funds without paying a 10% penalty before age 59.5 or doing a Roth conversion and paying taxes, so it’s more like a retirement insurance policy.
Further, a better goal might be to not become a 401k millionaire because that probably means you spent 18 years or longer working at a day job. What you should really be doing is building up your after-tax investment account aggressively so that you can retire well before you are 59.5.
As you’ve only got one life to live, you might as well figure out a way to escape the grind sooner, rather than later. Not a day goes by where I’m not thankful for aggressively building a portfolio of non-401k investments in my 20s and 30s to have the courage to leave my 401k behind.
These non-401k investments produce the passive income necessary to provide for my family of four. Once you max out your 401k, start aggressively building your taxable investment portfolio and rental property portfolio.
Recommendation To Help You Become A 401k Millionaire
If you want to become a 401k millionaire, you’v got to stay on top of your 401k. The first step is to run your 401k through Personal Capital’s 401(k) Investment Fee Analyzer to see how much you’re wasting in fees. I ran mine through and found out I was paying $1,748.34 a year in fees I had no idea I was paying.
After discovering how much I was wasting on actively managed mutually fund fees that didn’t have a perfect track record for beating their respective benchmarks, I switched to low cost index fund ETFs.
The next step is to run your 401k through the Investment Checkup tool also allows you to analyze your investment risk exposure and make appropriate adjustments.
Diversify Into Real Estate
In addition to becoming a 401k millionaire, you should also try to be a real estate millionaire as well. Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile and generates income.
Even if you are a 401k millionaire, you can’t access the funds without a 10% penalty until age 59.5. Therefore, investing in real estate to produce valuable passive income is wise. Real estate gave my wife and I the courage to leave our jobs by age 35 to live more freely.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
Sam,
I feel you have missed a few points in your initial analysis and while some where pointed out in comments, not all.
First, I may be an odd duck, but I am on track to have pretax accounts well exceeding my peak ordinary income by retirement. And compound that with your strange use of the commutative property. I think a guiding light should be not income when starting out but years of compounding. Without looking up specifics on a compound calculator….. if you expect to pay in $200k to yield, say, $1m… and even at same tax rate, say 20% to make math easier, that means you pay $20k in taxes on contributions and avoid 200-20k or 180k. This simplifies by not accounting for details, but what you ought to compare is avoided tax.
I fully agree that there is risk … who knows what tax rates will exist in the future, but I expect them to rise due to ineptitude as our debt servicing continues to grow.
You also missed another big risk: the USG siezes ALL private retirement funds. Think it won’t happen? Maybe you will be right, but Congress has been discussing it since before I was born. And it won’t be the first to do so if it does happen. With 50-80% of Americans on the road to self-destruction how else will the USG find money to send them in 30 years?
Hi Sam, I am new to FIRE community. First of all, I wanted to thank you for all of your hard work. You have shape and change so many people future and we are very greatful to you. Here is a little bit about me. I am 30 years old and married. I love my job and my goal is do part time job at 53 until 62 and fully retire. I am doing 2 jobs, 7 days a week with average of 65 hrs per week for almost 2 years. I am planning to do that for the next 11 years than move to just 1 full time job until 53. My wife is 24 years old and she is studying while working and make only 28k per year. Our combine income is average about 135k to 140k per years for the past 2 years. I had 88k of students loan and I just pay it off in 18 months by living with my parents but we are planning to buy a house around 250k to 270k at most. After tax and we have about 105k left. Our plan is to invest 10k to my 403b plan, 8k to Roth 403b plan, 11k for our Roth IRA, 5500 for our HSA and 25k for our taxable account per year and 1950 to my wife roth 401k. Our expense is around 41k per years. We contribute total of 60k per year not including any of employer matching. Our networth is low at the moment. I only have 60k in my 403b plan and 401k plan, 8k in my HSA, 14k in my roth IRA, 14k in my wife roth IRA and 10k in taxable account. I know that we suppose to max out our 403b 18500 and our Roth IRA and 50% after tax to our taxable account. I am just confuse about 50% after tax and I seem don’t understand how to calculate 50% of after tax saving to our saving account. If we make 135k per year, after tax 105k and after expense is around 41k and I contribute total of 60k per year which include our 403b plan, can you please tell me what is my after tax saving rate is? If I want to contribute 50% after tax which not including my 403b and Roth IRA, how much should I saving oer year toward my taxable account per year if I wish to do 50% after tax? By the way, our taxable account will stay with Betterment until I retire. Thanks for your help.
Financial Sam community-
I am VERY new to FIRE. Just this Jan 2018, I changed my 401k contribution to try to get the max which until this moment I thought was $18,000? I didn’t understand the post. What is equity/fixed income ratio and the other bit in parentheses?
In my career, I’ve never had access to a 401K. I hope to become a brokerage account millionaire before I become a Roth IRA millionaire. Or maybe a SEP IRA millionaire if I can get my business more profitable.
As I am an expat I can’t take advantage of a 401K. However, i get to avoid other taxes and that lets me save and invest more.
Granted the number of Americans not saving or investing is scary. The few times it has come up I noticed that a lot of my friends and colleagues have little beyond a savings account.
The biggest issue is probably not the amount of a return but a lack of participation by many.
12 more years! But I have a much bigger non 401k balance. Not revealing that though ;)