Tags: CNNMoney | Become | 401k | Millionaire

CNNMoney: How to Become a 401(k) Millionaire

By Michael Kling   |   Sunday, 17 Nov 2013 06:54 PM

There's a new kind of millionaire: middle-class workers who have accumulated more than $1 million in their 401(k) plans by following prudent savings and investing strategies.

A Fidelity Investments study found how they did it, according to CNNMoney.

Fidelity focused on about 1,100 people earning less than $150,000 a year who had accrued $1 million or more in their 401(k) accounts. Their average age was 59.

Editor’s Note: 5 Phases of a ‘Retirement Heist’ Exposed (See Video)

How did they do it? Basically, they started saving early, used company retirement plan matches, and saved significant portions of their incomes.

They garnered a median of $17,800 in retirement savings a year, including a median of $13,300 of their own savings in addition to a median employer match of $4,500 a year.

That helped median account balances grow from $226,000 in 2000 to $1.2 million in 2012.

Starting their investments young — in their 20s — allowed them to take advantage of compounding returns over time.

Financial planners generally advise saving at least 10 percent to 15 percent of your salary a year, CNNMoney notes. You should at least contribute enough to your 401(k) to get your full company match.

Financial planners recommend investing in stocks for good long-term returns. Bonds and savings accounts won't generate the returns necessary for a decent retirement fund. Some experts recommend subtracting your age from 120 to get an idea of how much you should invest in stocks.

Investors should stick to their asset allocation plans and avoid moving funds during market downturns or times of market euphoria. They also should beware of high fees and work as long as possible in order to continue contributing to their retirement funds for as long as they can.

Americans are saving more for retirement. They're putting over $300 billion into 401(k) accounts and other employer-sponsored plans, reports CNBC.

But many fear they're not saving enough because they're accumulating debt faster than retirement savings, according to a study by HelloWallet. Retirement plan participants spend 70 percent more to pay down debts than 20 years ago. Those 50 to 65 years old are spending an average of 22 percent of their income to pay down debt.

"It's remarkable," HelloWallet CEO Matt Fellowes told CNBC. "You'd expect most people at that point to be deleveraging: paying off their mortgage, paying back their student loans or have already paid off their student loans, and not having difficulty paying off credit card debt. But in fact those are the households that are most likely to be building up debt faster than retirement savings."

Editor’s Note: 5 Phases of a ‘Retirement Heist’ Exposed (See Video)

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