The 401(k) Millionaires Club Is Accepting New Members

How to Join the Club²

There’s no tried-and-true path to follow to join the millionaires club. But, interestingly enough, Fidelity found that members shared many of the same investment principles. Here’s a short list:

Setting up your account. Sometimes the hardest part of any task is getting started. The first step to becoming successful is to make investing a priority.

How does your 401(k) fit with your other investments? While this may seem intuitive, some overlook this key concept. Too many people view their 401(k) as separate from their other investments, and they don’t consider how they complement or contradict their investing strategy. For example, some popular guidance suggests that 401(k) investors “favor stocks over bonds,” but that type of broad-brush insight may or may not be in your best interest. Much can depend on how your other assets are positioned.

Starting early (or late). Just start. The typical Fidelity 401(k) millionaire has been saving for about 26 years. Clearly, starting early has its benefits. But always remember that something is better than nothing. So, we encourage a “carpe diem” approach: seize the day, whether you’re starting early or late.³

Know your match. Some employers offer matching contributions to add to the appeal of their 401(k) programs. Fidelity says the typical minimum company-based contribution is roughly 3%, but some programs pony up between 4% and 5% of a workers’ salary as matching contributions. “Free money” is hard to turn down, but it’s best to know when and how it’s added to your 401(k) before making a long-term commitment.

Hands off. Your 401(k) money is designed to be used in retirement, but it can be tempting to view your account as a piggy bank in times of need. Or cash out the account when changing jobs. After taxes and penalties, you may regret raiding the account. Life happens, and sometimes there may be no other choice. But it’s best to know the pros and cons before tapping into your retirement money for other expenses.

“As far as I can determine, there are only two types of income: one that comes from people working and the other that comes from money working,” writes Mick Owens, author of the popular book Diamond of Life: The Five P’s of Success and Significance. “Therefore it behooves each of us to see wisdom diligently.”

After reaching age 73, you must begin taking required minimum distributions from your 401(k), 403(b) or other defined-contribution plans in most circumstances. Withdrawals from defined-contribution plans are taxed as ordinary income. If a withdrawal is taken before age 59½, a 10% federal income tax penalty may apply.

For most people, a sound retirement strategy takes into account a wide range of factors, including any company-sponsored retirement program. We can help you understand the role your company-provided program can play in your retirement while reviewing all the other assets you have accumulated.