November 16, 2020
By Rahul Iyer
Becoming a millionaire sounds like a pipe dream, right? Only the rich and famous have a million dollars (or more) in their 401K.
What if you’re wrong? What if people just like you could have millions of dollars in their 401K too
The earlier you start, the more money you’ll save. Even though you’re restricted by the annual contribution limit (for 2020 it’s $19,500), your money has time to earn interest. Then your interest earns interest. Compounding interest is the best way to make your money grow fast and get you to your million-dollar goal.
Try contributing every month (or predetermined frequency) without fail. Better yet, increase your contributions each year or when you receive a raise, get a higher paying job, or receive a bonus.
Revisit your contribution schedule. Can you afford more? Even if it’s only a small increase, every little bit helps. But consistency is the key. Don’t set your contributions so high that you have to give up entirely to make ends meet.
When you’re young, you have a high-risk tolerance. In other words, you can invest a majority of your portfolio in stocks and only a little in more conservative investments. This gives you a higher chance of great returns while you can take the chance. If things fall apart, you still have a lot of time to make it up.
Once you’re closer to retirement than not, pull back. Don’t invest so aggressively, but don’t get so conservative that you have little to no earnings. Working with a financial professional will help you create the perfect portfolio.
It’s tempting, especially during times like now to dip into your 401K. You earned the money, so why not use it, right?
Leave it untouched if you can. Make dipping into your 401K a last resort. Even if you take a 401K loan and pay yourself back, you lose all the compound interest. That takes away from your chance of becoming a million-dollar retiree.
This is a problem a lot of people have. You change jobs and forget about your old 401K. You let years go by and then realize you forgot it. Those years just cost you thousands of dollars. Make it a habit to rollover your 401K right away, even if it’s into an IRA if you don’t have immediate access to a 401K at your new job.
Just don’t cash it in – roll it over and you won’t pay any penalties or taxes.
Becoming a 401K millionaire is easier than you think. It takes consistency and dedication and a whole lot of patience. Don’t expect it to happen overnight or even in a few years. Let your contributions and earnings grow steadily and before you know it, you’ll be in the million-dollar club too.