Feb 18, 2025
A 401(k), an employer-sponsored retirement plan with tax benefits, is one of the most popular ways Americans save for their golden years.
Collectively they hold almost $9 trillion in assets for 70 million participants (active and retired), according to the latest figures from the Investment Company Institute.
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The average balance in these accounts is $132,300, according to a recent Fidelity report in which the retirement plan provider analyzed the Q3 2024 data of 24.4 million 401(k) plan participants. The highest average balance is seen among Americans ages 65-69 at $252,800.
It may therefore not surprise you to learn that few Americans have a balance topping $1 million in their 401(k) workplace retirement plans. But those who have reached that milestone no doubt worked hard to get there. And with proper planning, you can, too.
A small percentage of savers
According to Fidelity, 544,000 individuals are 401(k) millionaires. When you consider the total number of 401(k) participants included in its study (24.4 million), this is a tiny minority of less than 3%.
But there’s a reason this number is so small. Building wealth for retirement takes effort and time. And if you don’t start early, you might really struggle to catch up.
Many people wait until they’re older to start building savings for retirement. And it’s easy to see why.
It’s harder to set aside money for retirement when you’re grappling with childcare expenses or new mortgage payments. And then, once your children grow up and go to college, you might face exorbitant tuition bills in the course of helping out.
A 2024 AARP study found that 20% of Americans aged 50 and older have no retirement savings whatsoever. But if you reach that age without any money set aside for your senior years, your chances of getting to the $1 million mark may be pretty slim.
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What it really takes to build wealth
People who retire with $1 million or more tend to start working toward that milestone early on in their careers. If your goal is to retire with $1 million or more, then one of the most important things you can do is start funding an IRA, 401(k), or another dedicated retirement account, at a young age.
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This doesn't mean you have to start off with large monthly contributions. Even small contributions can go a long way over time. But if you wait too long, you'll miss out on years of compounded returns in your retirement account. And that could leave you with a serious shortfall on your hands.
Imagine you set out to retire at 65, which is when Medicare eligibility typically begins, and you begin funding an IRA or 401(k) at age 25, giving yourself a 40-year investment window.
If you contribute $420 a month to your retirement plan during that time and your portfolio delivers a 7% yearly return, which is a bit below the stock market's average, you're looking at just over $1 million.
But watch what happens when you wait until age 35 to start saving that money. Assuming the same monthly contribution and return, you're looking at roughly $476,000.
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Put another way, in this specific example, waiting 10 years to start saving for retirement could cost you over $500,000 for your senior years. So it's important to start young and stay invested regardless of what's happening in the market.
Experts advise maintaining a diversified, balanced portfolio with an asset allocation that adjusts as you age. If you're not sure how to shape the best retirement portfolio for your goals, enlist the help of a financial adviser.
It’s also a good idea to take advantage of any free money for retirement you can get. In a 2024 Vanguard report, 95% of its employer-sponsored retirement plans offered a match.
Of course, another way to build retirement wealth is to consistently live below your means. Roughly 25% of U.S. households were living paycheck to paycheck in 2024, according to Bank of America. If your recurring expenses leave you with no room to fund a retirement account, it may be time to set up a new budget and make some cuts.
Another important thing to do is put your retirement savings on autopilot. The good thing about 401(k)s is that once you sign up, your account is funded automatically each pay period. But not everyone has access to a 401(k). And if you’re limited to an IRA, you won’t get that payroll deduction feature.
In that case, your best bet is to set up an automatic transfer from your bank to your IRA each time a paycheck hits. Putting the process on autopilot could help you stay on track. And that could lead to a scenario where you retire with $1 million or more to your name.
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Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.
