Who Wants to Be a 401(k) Millionaire?

Employees do, but they need some help

Stephen Miller, CEBS By Stephen Miller, CEBS August 20, 2018
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A record number of employees have become 401(k) millionaires, according to new client data released on Aug. 16 by Fidelity Investments, one of the largest administrators of workplace retirement plans. Midway through this year, 168,000 people with 401(k)s managed by the firm had at least $1 million in their accounts, up 41 percent from a year earlier.

While retiring as a millionaire is a challenge for people with modest incomes, employers can design their plans and educate workers so that more can achieve this goal. Below is a roundup of media reports with insights on this topic.

A Long-Term Effort

Building a million dollar-sized nest egg doesn't happen overnight and is a result of workers who invest for the long term. "Individuals are increasing their savings rates, they're taking advantage of their company match and they're keeping a healthy percentage of stocks in their account," said Jeanne Thompson, senior vice president at Fidelity. "It takes many years of consistent saving and investing, but following these steps as part of a long-term retirement strategy can put an individual in a good position to eventually reach this savings milestone."
(USA Today)

Increasing Savings Every Year Pays Off

While the increase in 401(k) millionaires is due in part to the recent stock market run-up, prudent savings practices are also needed. Tips that can help employees to grow their 401(k) accounts include:

  • Start saving as early as possible. To save a million dollars within a 401(k) may take the better part of a career.
  • Take full advantage of a company match, when available. Roughly 1 in 5 workers still are not contributing enough to get a full employer match, partly because many companies auto-enroll at a level that is lower than the match ceiling.
  • Increase savings every year. Employees who increase their savings rate by 1 percent of their salary every year to a target of 15 percent have a better chance of hitting the million-dollar mark.

(CNBC)

Video: Lessons from 401(k) Millionaires

401k_millionaires-2_dbn6xn.webp

(Nightly Business Report)

Automatic Enrollment Boosts Participation

Retirement plans that auto-enroll new employees have participation rates that exceed 90 percent, while opt-in plans have participation rates of 50 percent, according to new research by The Pew Charitable Trusts. Large majorities of workers said that they would remain in a retirement plan or program and begin saving for their future if automatically enrolled.
(Pew Charitable Trusts)

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

Tips for Managing Your Company's 401(k)

Communication and education for employees on how to wisely manage their accounts are essential for increasing the effectiveness of your company's 401(k). While vendors should be held accountable for educating participants, HR professionals can add a personal touch. After all, they have a closer relationship to employees than any outside consultant and can take advantage of that connection to drive home the importance of retirement planning.
(HR Magazine).

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