Want to be a 401(k) millionaire? Here's what it takes.

The number of people with $1 million or more in their 401(k) or IRA increased in the first quarter

  • By Michelle Singletary,
  • The Washington Post
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Think of them as the elite Navy SEALs team of retirement savers.

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These are the workers who have saved and invested their way into becoming millionaires in their workplace retirement accounts. Their numbers are small but their retirement accounts are substantial.

It was looking a little bleak for 401(k) millionaires. Volatility in the stock market at the end of 2018 kicked a lot of workers out of this elite team.

Fidelity Investments reported that for the fourth quarter of 2018, there was a 28.6 percent drop in the number of 401(k) millionaires in plans it administers.

But they are back.

The number of people with $1 million or more in their Fidelity 401(k) plans increased to 180,000 in the first quarter of the year, up from 133,800 reported in fourth quarter of 2018, according to Fidelity, one of the country’s largest administrators of workplace retirement accounts.

The number of IRA millionaires also increased to 168,100 up from 138,800, Fidelity said in its most recent analysis of retirement saving trends.

The number of 401(k) millionaires in plans administered by Fidelity is small figure — less than 1 percent. However, you can learn a lot from their investment practices. Here’s what it takes reach the millionaire status.

Time. They started saving early in their careers. Most 401(k) millionaires have been contributing to their plan for about 30 years. And by the way, many aren’t earning six-figure incomes.

It also helps if you can contribute as much as the IRS rules allow. The maximum amount of money workers can contribute to a workplace retirement account during the year increased to $19,000, up from the $18,500 limit for 2018. If you are 50 or over there is a catch-up provision that allows you to contribute an extra $6,000 for a total limit of $25,000 to an employer-sponsored retirement plan.

Consistency. The millionaires faithfully kept saving even as they bought homes or had children. They contributed at least 15 percent to their workplace plan, a percentage recommend by Fidelity. This might include a combination of what they’re putting in and a matching contribution from their employer.

Most employers offer a program whereby employees can sign up for an “automatic increase.” So, direct your employer to automatically boost your contribution by a certain percentage every year. This helps ease the pain of reaching for that 15 percent target.

Not leaving free money on the table. If there’s a company match, 401(k) millionaires take full advantage of it. They contribute enough to their plan to always get the match.

Not afraid of risk. Because they are in the market for the long haul, on average, they invest in equity mutual funds. They understand that one of the biggest risks to their retirement savings is inflation.

Not panicking during stock market downturns. They didn’t let bear markets — a period of falling stock prices — chase them away from equities. In fact, they see tumbling markets as a flash sale. It’s an opportunity to buy more stock shares at lower prices.

No question, this list is tough. You might be discouraged by what it takes to be a 401(k) millionaire. You may not be able to afford to save 15 percent of your pay for retirement. Or, maybe time isn’t on your side because you started saving later in your career. Still, don’t quit.

To join the elite Navy SEAL program, potential recruits have to push themselves to their maximum physical ability — and then some. The same is true if you want to become a 401(k) millionaire. You’ve got to push yourself to save more and not be fearful of the stock market.

But even if you never join this elite group, the boot camp-like discipline its members practice can still leave you in better shape for retirement.

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