To be a 401(k) millionaire, it takes money smarts. (Photo: Shutterstock)
Plan sponsors and HR benefits managers might want to clue in employees on some of the savings strategies used by women who've managed to save a million or more in their 401(k)s.
The Motley Fool reports that according to Fidelity Investments, the percentage of women with $1 million or more invested in their 401(k) has doubled over the last 12 years—from just under 10 percent in 2005 to 20 percent in 2017—and these savvy women had some productive strategies to get those balances up.
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While of course it helps to be a high earner—the average female 401(k) millionaire earns well above the average, at $287,700 a year—Fidelity's data found that lots of folks, both men and women, managed to sock away $1 million or more in their 401(k)s while earning under $150,000. Their secret? Save a big chunk of what you have coming in.
For instance, on a typical income of $46,000 a year, putting away 15 percent consistently every year, after 35 years that $6,900 in annual savings—assuming an 8 percent rate of return—will total $1.19 million. Can't come up with that much in savings on that level of income? Try side jobs or proactively asking for a raise—or moving to a new job and negotiating for a higher salary instead of accepting what's offered.
Mind you, millionaire status won't come overnight; the average age of 401(k) millionaires is 58.5 for women, and 59.3 for men. That means you have to try harder—and definitely save more than the 10 percent conventional wisdom says is enough to get you through retirement.
Instead, 401(k) millionaire women earning under $150,000 socked away an average of 18.1 percent of their salary. When combined with a 6.8 percent employer match—not a common contribution, by the way—these women saved a total of 24.9 percent of total income, approximately twice as much as women overall.
Male 401(k) millionaires with incomes under $150,000 were also saving much more than 10 percent, although not as much as their female coworkers; their total savings rate including the employer match added up to a 22.8 percent total savings rate. Of course, their salaries are usually higher than women's, which made it easier for them.
Can't quite cut it at that percentage? Look for ways to cut your cash outflow—such as a more affordable car or cutting subscriptions you don't really use or need—and putting the resulting savings into your retirement account.
And getting back to that business about age: the older you get, the higher your income should get, too, which means you can increase your savings rate—something the Fidelity data indicates happening the closer workers get to retirement. Millennials, for instance, save 10.2 percent on average, compared with 11.7 percent for GenXers.
And put that savings into stocks for a better return; putting your money into bonds might satisfy the more risk-averse among you, but it won't get you the rate of return you need to hit millionaire status.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
