How to Save Like a 401(k) Millionaire

Lesson 2: Put increases on autopilot

Many 401(k) millionaires adopt a set-it-and-forget mindset, taking advantage of auto-escalation features that increase their contribution rate by a set amount each year. Of the approximately 9 million Fidelity plan participants who increased their savings rate in 2023, about three-quarters did so automatically, Shamrell says.

Under SECURE 2.0, a federal law enacted in 2022 to bolster retirement savings opportunities, workplaces that have established retirement plans since Dec. 29, 2022, must automatically enroll eligible employees and increase contributions by 1 percent each year (up to a maximum that can range from 10 percent to 15 percent). If your 401(k) plan has been around longer, you’ll need to let your plan manager know that you want to auto-escalate your rate.

Lesson 3: Save aggressively

401(k) millionaires don’t scrimp when it came to putting money into their plans. Their personal saving rate is about 17 percent of their pay, not including any employer match, Shamrell says.

Not everyone can save at that level from day one. One way to catch up is to up your rate when you get raises or bonuses. By immediately directing that higher pay into your retirement account, you don’t give yourself a chance to miss it, Benna says.

“That was true for me personally with our plan,” he says. “If we had to save after paying all our bills and mortgages, it would’ve never happened.”

It’s not just how much money you save — it’s how you invest it. The younger you are, the more you may want to focus on high-return investments like stocks, says Eric Tyson, a former financial planner and the author of Personal Finance for Dummies.

“For somebody who’s in retirement or really close to retirement, there certainly can be valid arguments for having a modest portion of your money in bonds,” he says. “But for younger workers and people who can see leaving the money in these plans for decades, not just years, they really should skew the mix pretty heavily towards stocks.”

Lesson 4: Keep a separate emergency fund

“Life happens, and things come up that you weren’t planning for,” Tyson says. Whether they affect your home, your car or your health, those things often cost a lot of money. If you don’t have any emergency savings, you might be tempted to take money out of your 401(k) when the unexpected occurs.

With inflation increasing everyday expenses and high interest rates elevating credit card debt, loans and hardship withdrawals from retirement accounts increased every quarter in 2022 and ’23, according to a report from Empower, another major plan provider. More than a quarter of working Americans say they are somewhat or very likely to take out a loan or hardship withdrawal within six months, the study found.

The problem with doing that is twofold. First, you’ll likely owe incomes taxes on the money you withdraw, plus a 10 percent penalty if you are younger than 59½. Second, that money is no longer earning compounding returns. By building an emergency savings fund, you can tackle unexpected expenses while leaving your nest egg alone.

Lesson 5: Make up for lost time

What if you’re mid-career and haven’t saved as much as you’d have liked? It’s not too late. You can still build a significant nest egg, especially by taking advantage of catch-up contributions once you turn 50. This year, the catch-up limit is $7,500, meaning those ages 50 and up can put up to $30,500 into a 401(k), compared to $23,000 for younger savers.

And starting in 2025, those between ages 60 and 63 will be able to make even bigger catch-up contributions — up to $10,000 or 50 percent more than the age-50 limit, whichever is greater. The new catch-up tier is another provision of the SECURE 2.0 law.

Lesson 6: Stay the course

The longer you invest in a 401(k) plan — or any type of investment account — the more you benefit from compounding returns. According to the Fidelity data, the average balance for Gen Xers who have contributed continuously to their plans for 15 years is $554,400.

Staying the course also means not letting a volatile stock market affect your saving habits. Sure, the S&P 500 was down 18 percent in 2022 — but it finished 2023 up by 26 percent. Those who stuck to their savings rate through the bear market reaped impressive returns on their 401(k) contributions when things turned bullish.

“The markets swing up and down many times throughout your career,” Shamrell says. “You shouldn't be making changes based on short-term market events, and this group is a great example of that.”