Are You on Track for a Millionaire Retirement With Only a 401(k)?

Your 401(k) can be an incredibly powerful tool if you’d like to reach millionaire status by the time you retire. The big challenge with it is that it can be a bit difficult to tell whether you’re on track to reach that target while you’re still on that journey. After all, getting there depends both on how much you contribute and what rate you earn on your investments along the way.

Knowing whether you’re on track or not can make a huge difference to you. If you’re ahead of where you need to be, you can cut back on your retirement savings to focus on your other priorities. If you’re behind, then making a small adjustment quickly might be much easier than either making a larger adjustment later or missing your goal altogether. With that in mind, read on to find if you are on track for a millionaire retirement based only on your 401(k).

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Snapshots of where you need to be

Say you expect to retire at 65 and believe you can earn 8% annualized returns in the stock market between now and then. The following table shows what your 401(k) balance should be at various ages along the way, depending on how much you sock away each month inside that plan.

Data source: author.

If you’re under 50 in 2021, you can generally contribute up to $19,500 per year ($1,650 per month) to your 401(k). That number jumps to $26,000 per year ($2,166.66 per month) if you’re 50 or up. That’s why there are “N/A”s along the left of that table — folks under 50 simply are not typically allowed to sock away that much inside their 401(k)s.

As for the $0.00 entries in that table: They’re a sign that if you’ve got anything in your 401(k) by that age and are actively saving that much, you’ve got a good chance of reaching millionaire status by age 65. Still, there are no guarantees in investing, and that table does assume you’ll continue to invest every month until you turn 65 and earn 8% annualized along the way.

With that in mind, that table can remain a decent check against your progress along your journey. It can also provide some insights on what sort of adjustments you can make along the way. For instance, if you find yourself at age 40 with around $150,000 in your 401(k), you might be able to focus on your other life priorities and still wind up a 401(k) millionaire by age 65. On the flip side, if you find yourself falling behind, the sooner you pick up your contributions to close the gap, the better your odds of recovering.

Can you get there sooner?

Of course, if you want to get to millionaire status before your 65th birthday, there are plenty of good reasons to try. If you really want to get there sooner, your options are to invest more or to earn a higher rate of return. Reaching for higher rates of return might be possible, but the market’s long-run returns have been around 9% to 10% annualized. That makes it quite a challenge to achieve and an even bigger challenge to count on getting even faster returns above that rate.

Alternatively, investing more and/or starting to invest earlier can also get you to millionaire status faster. You can top out your 401(k) starting at a younger age, which gives you a shot at getting there younger. As long as you’re employed, you can also contribute to an IRA, which allows people under 50 to contribute up to $6,000 and those 50 and up to contribute up to $7,000 each year. If you want — and are able to — sock away even more, there are no limits to what you can save in an ordinary taxable account.

The challenge with saving more and saving earlier, of course, is having the money available to do so. Most of us don’t have a few thousand spare dollars sitting around each month to invest. Instead, what we can do is save what we can, and then look for opportunities to boost our savings over time as our incomes grow or our other obligations end. That means reaching millionaire status will remain a balancing act across available time, available money, and achievable rates of return.

Get started now to boost your chances of success

Balancing act or not, if the preceding table tells you anything, it’s that the sooner you get started, the less you have to sock away each month to have a chance of reaching millionaire status by a reasonable age. Your 401(k) can be an incredible tool to get you there, but it doesn’t have to do it all on its own. Take advantage of it, and supplement if you need to, but make your focus getting on track as soon as you can, to maximize your chance of success.