For Mark Roberts’ Use: Becoming a millionaire has long been part of the American dream, but many Americans feel that such a goal is out of their reach. Others simply assume it is inevitable, because they earn high incomes, but fail to plan appropriately and therefore never reach the goal. Either way, accumulating a million dollars in your 401(k) account is entirely possible, but it requires years of strategic planning.

An analysis* of 12 million 401(k) funds confirmed the assumption that account balances of one million dollars or more are indeed rare. Only 0.4 percent of the accounts carried such a high balance. What’s interesting, however, is that a substantial number of the 401(k) millionaires are not earning salaries in the top income tax bracket. Eighteen percent of the funds carrying balances of 1 million or more were owned by people who earn less than $150,000 annually, meaning the million-dollar goal may be a realistic dream for many middle-class Americans. So how do you accumulate a million dollars or more in your 401(k) account? The analysis discovered that smart savers – the ones with million-dollar account balances – followed these strategies:

  • Begin saving early in your career
  • Contribute at least 14 percent of your salary each year (the analysis found that those with a million-dollar account balance contributed an average of 14 percent of their salaries each year)
  • Save enough to earn full matching funds from your company, and take advantage of profit-sharing opportunities to add funds to your retirement account (on average, this meant an additional 4.8 percent of salary deposited into the accounts)
  • Never cash out the account when you change employers, and don’t take early withdrawals for any reason
  • Invest more of your assets in equities (stocks carry a higher risk, but earn more interest than cash or bonds over time)

Talk to your financial advisor about the investing strategies that are right for you. Keep in mind that while growth-oriented investments carry higher risks, the alternative risk is not having enough money to cover your living expenses in retirement.

*MarketWatch, November 12, 2013