How Many Years of Maxing Out a 401(k) Does It Take to Become a Millionaire?

One million dollars is a popular benchmark for retirement savings. As the lowest whole number to use seven digits, $1 million makes for a straightforward wealth target. Reach it and you earn a fun title — millionaire — plus you have a nice nest egg to supplement your Social Security.

The big questions are, how do you reach the $1 million dollar milestone and how long will it take? Here are your answers. The surest path is to max out your 401(k) contributions until you hit the goal. And, as the table below shows, your timeline will vary depending on how your investments perform.

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Note that the $1,625 monthly contribution comes from the 2021 max 401(k) contribution limit of $19,500. If you are 50 or older, you qualify for additional catch-up contributions — which are $6,500 in 2021.

Monthly Contribution

Average Growth Rate After Inflation

Total Contributions

Years to Reach $1 Million

$1,625

7%

$450,125

23

$1,625

5%

$508,625

26

$1,625

2%

$703,625

36

$1,625

1%

$820,620

42

Calculations by author via Investor.gov.

Growth rate is a factor

You may see that 1% and wonder if your high-rate bank savings account could support your millionaire journey. Unfortunately, the answer is no. High-yield savings accounts are currently yielding 0.5% to 0.6%, but those rates are not adjusted for inflation. When you account for an average inflation rate of 2% or 3%, a high-yield savings account actually loses purchasing power over time.

On the other hand, the long-term average annual growth of the stock market after inflation is 7%. If your 401(k) is invested in mostly stock funds, that rate should be achievable over five years or more. To the extent you are invested in more conservative assets, like bond funds, you will see a lower average growth rate.

As the numbers above show, the higher growth rate speeds up the timeline. Higher growth also lowers your out-of-pocket spend on contributions. At 7% growth, your journey to $1 million only costs you $450,125. The other $550,000 comes from earnings — which is a beautiful thing.

Chasing above-market growth

You might be tempted to chase growth rates higher than 7% to shorten the timeline and lower your out-of-pocket contributions. You can do that, but understand the risks.

Higher growth potential comes with more volatility. If you’re young and retirement is decades away, you can tolerate some volatility. You don’t need to withdraw funds from your 401(k) for years — so if the market crashes on you, you can wait for the eventual rebound.

As you get older, the high-risk/high-return approach becomes more dangerous. You don’t want to see your 401(k) balance reach $990,000 and then dip below $700,000 in the years before you plan to retire. That would force you into a tough decision. You can either start liquidating your shares for temporarily low prices to fund your retirement distributions, or you can delay your retirement until share prices recover.

Don’t forget about employer match

The table above does not consider any employer matching contributions. Employer matching contributions are hard to project because their value depends on your salary and your employer’s rules.

Still, no matter what you make or how generous your matching program is, employer-funded contributions will shorten the timeline to $1 million. As an example, if your match adds a modest $200 to your monthly contribution, you’d reach $1 million in 22 years instead of 23.

Timeline to $1 million in retirement savings

If you max out your 401(k) contributions, get your full employer match, and maintain a stock-focused portfolio, you can be a millionaire in 25 years or less. Even better, you can do it with contributions of less than $500,000 out of your own pocket.

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