Your workplace retirement account can play a critical role in your overall retirement strategy, especially with the dwindling of pensions offered by companies. Some people have excelled at putting money into their retirement plan at work and have found themselves at a commonly heard milestone.
CNBC reported on findings that place 401(k) accounts at all-time highs, with some even joining the much desired “two comma club” of 401(k) millionaires. Average 401(k) balances jumped 24% from the previous year to $129,300. Also on the rise were overall contributions, with 12% increasing their contributions since last year and 37% of employers placing new employees into workplace plans. The study discovered a record 412,000 401(k) plans with million-dollar balances; overall Individual Retirement Account (IRA) millionaires reached 342,000, another record.1
Some of this represents a correction from 2020 as well as the economic uncertainty faced during the early days of the global pandemic. People are rethinking their retirement needs and taking advantage of employer matches, if available. It also reflects businesses working to entice employees; even some restaurants are offering 401(k) plans to their workers these days, in a bid to maintain staffing levels year-round.1
One thing most of these accounts will have in common is that contributions are constant. Regardless of headlines or market, in each paycheck, there is a contribution made. This is a strategy called dollar-cost averaging that helps to take the emotions out of investing. Dollar-cost averaging is when you invest money at a regular interval and purchase shares regardless of whether the price is up or down. I touched a little bit on Dollar Cost Averaging in this article last year.
Another point to touch on is employer matching. If you are lucky enough to participate in a plan that offers an employer match, TAKE IT! This is essentially free money that your employer is willing to give you. Every plan is different so be sure to talk with your employer and find out your company match. Imagine I told you that every time you put $30 into your savings account that I would also put $30 in for you, you would probably jump at that offer. Obviously, this is hypothetical and I wouldn’t do that but you get the point. Once you maximize what your company match then you can look at different options.
What does this mean for your overall retirement strategy? How do you become a 401k millionaire? The first step is putting together a plan to see where you are currently and figure out how much time you still have to grow your money. Everything we do for our clients is with their unique financial plan at the forefront of the conversation. If you have a plan in place, be sure to review it. If you do not have a plan there is no better time to start than right now. We’d be happy to talk to you about this and the many other choices open to you at your earliest convenience.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
1. CNBC.com, August 19, 2021
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