Analysis

1 Secret of 401(k) Millionaires

Retiring a millionaire is a lofty goal, but as costs continue to rise, it may be a realistic target for many older adults. The 401(k) is a powerful investing tool, so if you have access to one, it’s wise to take full advantage of it to maximize your savings.

The good news is that you don’t need to be rich to reach millionaire status, and there’s one secret that can make it far easier to earn $1 million or more: Start saving as early in life as possible.

Image source: Getty Images.

Time in the market is critical

The earlier you begin investing for retirement, the less you’ll need to save each month to reach your goal. This is thanks to compound earnings, which help your savings grow exponentially faster the longer they have to accumulate.

For example, say you have a goal of reaching $1 million, and you’re earning a modest 9% average annual return on your investments — which is just below the market’s historic average. Here’s how much you’d need to save each month depending on how many years you have until retirement:

Number of Years Amount Invested per Month Total Savings
20 $1,700 $1.044 million
25 $1,000 $1.016 million
30 $650 $1.063 million
35 $400 $1.035 million
40 $250 $1.014 million

Calculations by author via investor.gov.

Of course, if you’re off to a late start, you can’t go back in time and begin saving earlier in life. But every year counts, so if you’re debating whether to start saving now or wait, it’s almost always better to begin now — regardless of how much or little you have to invest.

Time is an incredibly valuable resource when saving for retirement, and it’s wise to make the most of it. By maximizing your savings as early in life as possible, you’ll be on your way to becoming a 401(k) millionaire.

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