It is entirely possible to have over $1 Million invested in your 401(k). So why don’t many people have a million dollars? It’s all about your savings rate. This video will have a complete breakdown of how much you should save each year based on your income.
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⏰ Table of Contents ⏰
0:00 Introduction to 401K
2:58 401K Investing in your 20s
5:56 401K Investing in your 30s
8:32 401K Investing in your 40s
11:12 401K Investing in your 50s
14:20 Why Invest in 401K
#FIREPsyChat #FinancialIndependence #401k
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Disclaimer: I am not a financial advisor. I am solely sharing my personal experience and opinions. All Strategies, tips, suggestions, and recommendations shared are solely for entertainment and educational purposes only. There are financial risks associated with investing. You must conduct your own research and due diligence or seek the advice of a licensed advisor if necessary.
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Building wealth through a 401k plan is a popular route for many. Becoming a 401k millionaire is an achievable goal, but requires proper investment planning and discipline. This guide will give you a framework for investing in your 401k by age, so you can set yourself up for a million dollar retirement.
In Your 20s: Start Contributing Early
The earlier you start, the more time your money has to grow. In your 20s, you should aim to contribute at least 10% of your income to your 401k. If your employer offers a match, don’t leave free money on the table, always contribute enough to get the full match.
In Your 30s: Increase Your Contributions
In your 30s, you should aim to contribute 15% of your income to your 401k. This is the time in your career where your salary may increase, so it’s important to take advantage of that by increasing your contributions.
In Your 40s: Take On More Risk
As you enter your 40s, you should focus on taking more investment risk. This means investing in equities which have higher potential returns but come with higher risk. By taking on more risk, you’ll have a better chance of achieving higher returns and reaching your million dollar retirement goal.
In Your 50s: Catch Up Contributions
In your 50s, you have the opportunity to catch up on contributions if you haven’t saved enough. The catch-up contribution limit for 401k plans in 2021 is $6,500 for those over the age of 50. This means you can contribute a total of $26,000. It’s important to take advantage of this opportunity if you need to make up for lost time.
In Your 60s: Focus on Preservation
As retirement nears, it’s important to focus on preserving what you’ve saved. Shift your investments to a more conservative portfolio with a mix of stocks and bonds. This will help protect your savings from market volatility and preserve what you’ve worked hard to save.
Additional Tips
Here are some additional tips to help you become a 401k millionaire:
– Keep fees low: Choose low cost index funds and avoid high fee actively managed funds.
– Rebalance annually: Keep your portfolio balanced by rebalancing your investments at least once a year.
– Avoid borrowing: While many 401k plans allow loans, it’s best to avoid borrowing from your retirement savings.
– Increase your contributions: If you get a raise, increase your 401k contributions to keep pushing towards your millionaire goal.
In Conclusion
Becoming a 401k millionaire isn’t easy, but it’s achievable with proper investment planning and discipline. By investing early and contributing consistently, managing risk, taking advantage of catch-up contributions, and staying disciplined, you can set yourself up for a financially secure retirement.
Do you need help with your personal finances? Schedule a free 20-minute financial coaching session by visiting https://www.firepsychat.com/coaching.
From my point of view, it is not necessarily a good thing to have that large of a balance in a 401k. 401k RMDs or withdrawals can impact your SS taxes, Medicare premiums etc. Married or single you need to understand the impact of all the different retirement accounts. Converting a substantial from or all of a 1M or greater 401k can be a very long and tax expensive process especially with almost certain tax hikes going forward. A 1M 401k can potentially grow faster than can be withdrawn and converted in pre retirement or retirement. In addition, a person who works for many years with the same company where their 401k is held, may likely be in their best earning years and not be able to do Roth conversions due to the 401k being in service without quitting their job. I would suggest contributing to your 401k to get the matching funds in the 401k, maxing out the Roth IRA, then maxing out the company Roth 401k if offered, and then contributing after tax dollars to the Roth 401k if offered, and finally maxing out the HSA account. Be sure to take advantage of any catch up contributions if your age allows. Roth accounts can provide the most flexibility in retirement for tax free investing and withdrawals. For the 401K, the rule of 55 can potentially help with retiring early. Retirement planning can be complex, many company 401k plans such as Fidelity may offer free or low fee advisors. It is best to learn and understand all these retirement gotchas and build a retirement strategy, plan and timeline. Psy does an excellent job in presenting retirement and wealth building information.
The video touched all great aspects of 401kninvesting. Would you consider recommendations or what and how you invested/allocations in your 401k. Considering that most explorers have very limited offerings and no direct access to S&P 500 – guidance on allocations of 401k please
Thanks a lot for this video!