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Retirement. Many people look forward to this stage in life. To some people it may mean traveling abroad. To others, it might be living out their golden years in a secluded cabin in the woods. But when you’re no longer working how do you continue to pay for the things you need? How much money does it take to retire? AARP estimates that you’ll need about $1.18 million for a 30-year retirement. That number may seem overwhelming, but investing in a 401(k) can help get you there.

What Is a 401(k)?

401(k) accounts are retirement accounts that you usually contribute to through your employer. Many employers will match up to a certain percentage that you contribute. The funds are usually invested, so that the amount grows over time. The great thing about these funds is that they aren’t taxed.

Yes, you read that right. You can take advantage of this tax-advantaged retirement account. Since it uses the power of compounded interest, you can become a 401(k) millionaire.

How to Become a 401(k) Millionaire

A contribution plan by Fidelity shows that there are about 157,000 people with over $1 million in their 401(k)s. So, as impossible as it sounds, it can be done. However, these numbers only represent 1% of Fidelity’s total retirement program participants.

The first thing you need to know about becoming a 401(k) millionaire is that it isn’t going to happen overnight. It will take work, discipline, financial savvy, and years of investing.

Once you understand that, you’re ready to start your journey toward becoming a millionaire in retirement. Here are some tips that will help you become a 401(k) millionaire:

Start Now!

The key to investing successfully is to choose the right investment portfolio. You also want to start investing as early as possible. Investment accounts such as a 401(k) get better with more time and money. This is a wealth-building tool that works on compounded interest. This means that if you start contributing in your 20s’, you’ll have more money when you cash out in retirement.

For example: a 20-year-old starts investing $4,600 annually today to a 401(k) with 7% annual returns for the next 40 years. If they do it consistently, by the time this 20-year-old hits 60, he or she will have roughly $1.02 million in their 401(k).

Most people invest in this kind of account for the duration of their career. If you start contributing later on (like in your 30s’), then you’ll have to contribute more to meet your million-dollar goal.

If you start investing now and contribute the right amount, it’s very possible you’ll hit that million-dollar mark.

Take the Necessary Amount of Risk

When it comes to investing money, higher risks can bring higher returns. That doesn’t mean that you should take blind risks. The best kind of 401(k) funds balance between risky and stable investments. Stable investments tend to have lower returns. A majority of investors will allocate large portions of their 401(k) accounts to low-risk ventures such as Stable Value Funds.

When determining where to invest your funds, it’s a good idea to evaluate whether you want to put it toward high-risk investments or low-risk ones.

Find the Right Kind of Financial Advice

There are things that only a professional financial adviser can help you understand. It may be a good idea to find a financial adviser who can help you plan for retirement. Just think of it as part of your investment.

You will also need to pay close attention to things like:

  • Rolling over your old 401(k)s from previous employers. Some people neglect these old accounts.
  • Taking advantage of your employer match. It’s important to see what the maximum contribution is that your employer will match. It’s basically free money!
  • Deciding how much to contribute each year. If you’re starting to contribute later in your career, you may want to consider contributing more each paycheck.
  • Reading the fine print and understanding how fees affect your bottom line. Some people take out 401(k) loans or opt for early withdrawal, which can come with a lot of fees.

It takes a great deal of time, but if you’re smart about the investments you make with your 401(k), you can count yourself among the millionaire elites when it’s time to retire. With enough planning, your golden years can be worry-free when it comes to your finances.

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