We know that not enough
people are saving for retirement, but there is an elite group managing to reach
rarefied territory.
The 401(k) millionaire’s
club is relatively small, but it’s growing. The number of workers with $1
million or more in their 401(k) increased to 157,000 at the end of the first
quarter this year, an increase of 45 percent compared with the same time a year
earlier, according to Fidelity Investments, one of the country’s largest
administrators of workplace retirement accounts.
But getting to the
millionaire status took some time. Most 401(k) millionaires have been saving
for about 30 years, according to Fidelity.
“There’s no doubt that many
of Fidelity’s 401(k) millionaires have benefited from the market’s positive
performance, but they also exhibit many of the behaviors we recommend to make
the most of your savings,” said Jeanne Thompson, senior vice president for
Fidelity. “They contribute enough to get their full company match, they’re less
likely to take 401(k) loans, they don’t cash out when changing jobs and they
invest for growth — on average, 401(k) millionaires hold 76 percent of their
savings in equity mutual funds.”
Workers can now contribute
up to $18,500 each year to a workplace plan such as a 401(k) or the federal
government’s Thrift Savings Plan (TSP). If you’re over 50, there’s a catch-up
provision that allows you to contribute an extra $6,000 for a total
contribution of up to $24,500 to an employer-sponsored retirement plan.
The average account balance
at the end of the first quarter for individuals who save in both a Fidelity IRA
and a Fidelity workplace savings account, such as a 401(k) or a 403(b), rose to
$299,600, up 9 percent from the $275,700 at the end of the first quarter in
2017.
Looking at just 401(k)
accounts, Fidelity reported the average balance dropped to $102,900, about 1
percent lower than the previous fourth quarter in 2017. But year-over-year, the
average balance was up 8 percent.
Fidelity’s analysis of first
quarter data also found the following.
— Workers who have saved in
their company’s 401(k) for 10 years had a record high average account balance
of $290,100, compared with $250,500 a year ago.
— Those employees who have
saved for 15 years had an average balance of $379,600, up from $330,200 a year
ago.
The number of TSP
millionaires has also been growing, up to 23,962 at the end of last year,
compared to 3,272 in January 2016, reported Mike Causey for Federal News Radio.
“Although found at many
grade levels and in nearly every agency throughout the country, all of the
people in the million-plus column have the same things in common: they have
invested for the long haul, and invested heavily or exclusively in the
stock-indexed C and S funds,” Causey wrote. “When markets drop dramatically —
as they did in 1997 and during the Great Recession — they continue to purchase
stocks getting more shares each pay period because they are investing the same
amount of money, which purchases a larger share of the C and S funds. Also, all
of those eligible for it have taken advantage of the total 5 percent match
available from their agency.”
Looking at the data,
millennials should be encouraged because it shows investing early can help them
reach the millionaire club status.
“Hitting that $1 million
retirement savings mark often takes the better part of any career,” writes
Susan Tompor, Detroit Free Press personal finance columnist. “After all, there
are limits to how much you can save each year in a 401(k) — and there is the
potential downside of brutal bear markets, like the meltdown in 2008-09. More
time can mean more money.”
Still, reaching the
millionaire milestone may not give some people a sense of security.
In last week’s
retirement newsletter, I asked how did you know you were ready to
retire?
For some, the decision to
retire wasn’t theirs.
“I retired because my
organization said I had to,” Robert Hanawalt wrote. “So, I did but
really didn’t want to. Since I worked for an international organization in a
nonfamily duty station, I had to move back home to Washington where I hadn’t
really lived in years and kick the tenants out of our house and do lots of work
to get it ready to live in again. Then in the first week of my retirement, the
office called and asked me to go to West Africa to Mali to work in an
emergency. I refused. They kept calling me back until finally, two months
later, I accepted to go for a two-month short contract. You know what happened?
I worked there for 11.5 months and then hoped to retire again.”
Several more stints in
various countries and Hanawalt was back working.
“I am a sucker for helping
out when there is an emergency and doing short stints is wonderful to keep your
feet wet and up to date on colleagues and rules and regulations,” he wrote.
Donnie B. from Hanover, Pa., said
after 35 years of “loyal service” he was laid off from his last job. “So now it
is our problem to figure out to making it on just Social Security. I will be 80
this year if I make it.”
Kenneth Nusbaum of Ormond
Beach, Fla., retired from a tenured professorship. “While I enjoy some of
the unstructured time, I still have not reassembled a community of good friends
nor a sufficient support system. Lots of organizations hear my qualifications
and ask me to join the board. But, after fixing problems for over 30 years, I’d
like to be just a rider sometimes; invite me for a beer rather than [attending]
another committee meeting. Do not retire if you cannot identify a continued or
welcoming sustaining community that supports something besides your
contribution.”
Hampden Smith from Pompano
Beach, Fla., wrote, “The biggest change when I retired was not finding
what to do with my time or, narrowly, how to manage a budget. It was the
absence of a paycheck and having to learn — for the first time, really — how to
be an investor. All of a sudden, no automatic income. There was, of course,
what we’d saved and Social Security. But that was it. If we were to live safely
throughout retirement (30 years?) then I’d/we’d have to learn how to invest the
fixed amount of money we had. All bonds? No, because inflation would eventually
put us in poverty. Highflying risky investments? No, because of the likelihood
some disaster would ruin us. Whether to invade principal or try to live off
dividends and interest alone? All questions, I was horrified to realize, I had
not been confronted with before. Stupid me? Probably. But in my defense, it was
an entirely new topic, one I had not been preparing for. Takes a long time to
get comfortable with these complex issues.”
Daniel Dunn of Winchester,
Calif., retired in 2011. His wife retired a year later. “We are doing well
financially. My wife worked for an agency that pulled out of social security,
so her SS payments are very low. When our children were growing up, we had
little cash to spend. It seemed like we barely made it to the end of the month
before the money ran out, but my wife’s agency matched her 401 (k) deposits up
to 10 percent of her salary, so we always made sure to save that much to get
that gift. Then our children started leaving the roost, and we were able to
save a little more each month. By the time we quit working, we were sitting
comfortably. We have a team of financial advisers, and we meet twice a year to
discuss our finances. We have grandchildren in Northern California and Nevada,
so we travel to see them about four or five times a year. We haven’t done much
traveling beside seeing our grandchildren lately because we are so busy.
The thing that surprised
both of us after we retired is that we were able to get everything done while
we were working. We are busy all the time. We started taking classes at the
local Community College, and we found out my wife is quite an artist. She is a
great photographer. She creates beautiful ceramic pieces, and she has an
incredible talent for drawing. We both take piano. We both took guitar lessons.
We spend a lot of time working in the garden and trying to keep one step ahead
of the gophers and bunnies who love to destroy landscaping. I was fearful we
would not have enough money in retirement, but we are doing well. I am actually
getting more money now than when I was working.”
Planning is key to
determining when you are ready to retire wrote Ed Johnson of Grand
Prairie, Tex.
“When I turned 55, I started
saving as much as I could, employee stock, 401 (k) and private IRA. I
calculated all my expenses and set up a monthly budget. I worked for 37 years
and was so ready to quit so I stuck to my aggressive saving and hoped I could
get to 62 without a layoff or any other catastrophe. At 61, there was a layoff
coming and I was asked to rate all my subordinates and get the list to them. I
thought about it long and hard and decided to throw my name in the hat. I
wasn’t sure I was ready psychologically but with the package that they were
offering I knew financially I was set. So, I checked all the numbers, talked
with the wife and grown-up kids and pulled the trigger at 61. You never know
the future, but I knew I sure didn’t want to work till I was 66 and I am so
glad I made the decision. Everybody is different, but the key is the plan. You
have to have a plan and a little luck helps. Three years later at 63 I am so
happy. My message to others is plan, plan, plan.”
Shankha Mitra of Boulder
Creek, Calif., wrote, “My wife and I both left our careers in technology
and law last year after 25 years. I struggled with aligning my values and my
work for many years and its all-consuming nature. We finally executed on our
plan of living and working (for a tiny stipend) at a Buddhist retreat center.
It happened a few years earlier than I was expecting; the kids were supposed to
have finished college in the original plan. Finally, I feel my work is of some
benefit to society and I can devote my energy to things we like to do: play the
violin, travel, and a life that is introspective and connected to nature. Plus,
my mental and physical health is better. We call ourselves semiretired. We make
a tiny amount of money, but one really doesn’t need that much. We fool
ourselves into thinking that we need all these things in life, but when it
finally comes down to it, we enslave ourselves for material things that we
can’t take with us anyway. Do I miss my old job? Not a bit.”
Here’s a reminder from one
reader to check your divorce settlement, which can affect your retirement.
“My husband retired from the
federal government at the beginning of the year several years ago,” one reader
wrote. “Office of Personnel Management (OPM) takes several months to get their
calculations straightened out, so he had been receiving estimated payments.
About four months after he retired, I came home from work to find him looking
so distraught that I thought someone had died. He showed me the letter he had
just received from OPM. The letter stated that half of his retirement pay, and
all of his retirement survivor benefits would be going to his ex-wife. When I
asked how that was possible, it turns out he had never read his divorce
agreement which clearly stated what she would get from his retirement. In fact,
she had just started receiving payments from OPM and was calling him asking
what was going on. As luck would have it, she was about to remarry, and she
wanted no part of his retirement money or survivor benefits. My husband hired
an attorney to draft legal papers reversing that part of their divorce
agreement which she readily signed.”
Click here
for the original article from The Washington Post.