The prospect of becoming a 401(k) millionaire might feel unattainable for some. Many feel their salaries aren’t high enough to build a seven-figure retirement account through their job’s retirement plan.

Nonetheless, it is more feasible than you may realize. According to mutual fund giant Fidelity, by the third quarter of 2024, over 540,000 participants in the retirement plans it oversees had amassed over a million dollars in their accounts. So yes, achieving this goal is possible.

Curious about how they did it? These individuals followed four key actions that you can adopt as well.

1. Contribute even if it feels painful

Many individuals just starting their careers, or those earning modest salaries, often refrain from contributing to their retirement plans, worried they’ll need immediate access to every dollar they earn.

However, this short-term mindset can have long-term consequences. Skipping retirement savings for a year or two can quickly stretch into several years, making a significant impact down the line.

For instance, if you invest $3,000 annually in an S&P 500 index fund for 30 years, you’ll accumulate about $570,000. Increase that saving period to 35 years, and you’d be close to a million dollars — approximately $957,000 — assuming an average annual return of 10%. Just an extra five years can make a huge difference! In that additional time, by the end of the fifth year, you could already have around $20,000 saved, granting you an advantageous head start as you let time work for your growth.

So, while it may put some strain on your finances initially, it’s crucial to carve out that amount and contribute it promptly — even if it’s challenging.

2. Maximize your employer’s match

That $3,000 figure is just a general example. Some may contribute less or have the capacity to contribute more. Regardless of your specific contribution ability, make it a priority to ensure you are receiving the maximum employer match available for your 401(k).

This matching amount varies widely among companies and may also differ annually. To give you some context, Fidelity notes that in the third quarter of last year, U.S. employers contributed an average of $1,240 to their employees’ 401(k) plans, while employees were deferring an average of $2,350. Their estimation also suggests that the usual employer match falls between 4% and 5% of employee earnings, with employers covering about one-third of the total savings in these workplace retirement accounts.

It’s essential to check your employer’s matching rate and contribute enough to qualify for the full match. After all, your employer will only match what you contribute, which is why it’s referred to as a “match.” Considering this is essentially free money, it’s certainly worth your efforts and sacrifices.

3. Resist the urge to outsmart the market

Most retirement plans are administered by mutual fund companies like Fidelity or Vanguard, which typically offer a limited selection of their own funds. Even if your plan provides different options, they may not be extensive.

Don’t let this discourage you. Opt for the simplest index fund available — or the closest option you can find. Why is this important? Because most mutual funds that aim to outperform the market tend to lag behind their benchmarks.

Standard & Poor’s has tracked this issue, revealing that over the last five years, 77% of large-cap funds underperformed compared to the S&P 500. Over the past decade, nearly 85% of these funds fell short of the index. And it’s worth noting that only about 2% of large-cap funds stay in the top half of performance rankings over any five-year period.

Unless you are exceptionally lucky, identifying these top-performing funds can be quite challenging. To give yourself the best chance of solid returns, your strategy should focus on matching market performance rather than trying to beat it.

4. Allow ample time for growth

Lastly — and perhaps most crucially — understand that becoming a 401(k) millionaire is likely to be a long journey. Even for those making maximum contributions, reaching this goal typically takes decades. Many of today’s millionaire investors took at least 30 years to accumulate their wealth, with some extending closer to 40 years.

These investors experienced numerous market fluctuations along the way, but they recognized that the market’s upward trends ultimately outweighed the downturns. They continued to contribute even during challenging market conditions, knowing they were purchasing stocks at discounted prices.

For those feeling dispirited, keep this in mind: Your annual net returns from your combined savings won’t surpass your annual contributions for about 20 years. It’s during this critical period that the real growth occurs. Approximately half of the earnings from your retirement accounts typically materialize in the last third of your saving period.

Thus, it’s essential to keep contributing what you can, whenever you can, even if it seems like a small amount. This ensures you reach crucial growth milestones with as much saved up as possible. The significant growth phases begin shortly thereafter.

James Brumley has no stake in any of the stocks mentioned. The Motley Fool has no position in any of the stocks discussed. The Motley Fool adheres to a disclosure policy.

The Motley Fool is a content partner with YSL News, providing financial news, analysis, and commentary aimed at helping individuals take control of their financial futures. This content is independently produced, separate from YSL News.

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