Page 36 - Kiplinger's Personal Finance - November 2018
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       index tumbling 18% in 2011.   THE SEVEN FIGURES CLUB                          ments. Contributions are
           What is likely off the table                                              up, too. The average savings
       with a Democratic House   SECRETS OF THE                                      rate, which includes em-
       and Republican Senate is                                                      ployee savings and company
       tax reform 2.0, which would  401(K) MILLIONAIRES                              matching funds, was re-
       make certain provisions of   The bull market helped boost balances, but       cently 13%, up from 12.5%
       the 2017 tax law permanent,                                                   in 2008. The 401(k) million-
       locking in individual and   these workers also save more and avoid loans.     aires save even more, says
       small business tax cuts. So-                                                  Murphy. The average sav-
       cial Security and Medicare                                                    ings rate for those workers
       reforms, which might have   The number of 401(k) ac-  account balance rose 6% from   is 17%, and some million-
       helped offset the effect of   counts with a balance of $1   a year earlier, to $104,000,   aires save up to 25%, she
       the tax cuts, are also likely   million or more rose to a re-  and the average balance in   says. Other characteristics
       off the table.            cord 168,000 in the second   individual retirement plans,   of 401(k) millionaires:
         There are a couple of areas   quarter, an increase of 41%   which allow workers to save
       of likely agreement or at   from a year earlier, accord-  even if they don’t have a   They’re in it for the long haul.
       least compromise between   ing to Fidelity Investments,   workplace plan, rose to   Most 401(k) millionaires
       the parties, UBS says. One   the nation’s largest plan ad-  $106,900, up nearly 7%.  have been contributing to
       is spending for infrastruc-  ministrator. Although that’s   The bull market contrib-  their plans for 28 to 30 years,
       ture, which would benefit   only a small percentage of   uted to the growth, but it   even if they’ve changed jobs.
       industrial firms. The other   401(k) participants, there   wasn’t the only factor, says
       is drug price controls,   were other positive develop-  Meghan Murphy, a vice   They’re big on stocks. The
       which could pressure phar-  ments. The average 401(k)   president at Fidelity Invest-  401(k) millionaires typically
       maceutical stocks. A united                                                   have 75% to 80% of their
       Congress under a president                                                    savings in stocks, Murphy
       of the same party is the            Who wants to be a                         says. Stocks have histori-
       best outcome for stocks             401(k) millionaire?                       cally outperformed other
       historically. But even fol-                                                   types of investments.
       lowing elections in which
       majority rule changes in       Here’s how much you need to save each month, including   They avoid taking out loans.
                                     the match from your employer (if you get one), to accumulate
       Congress, the market tends                                                    While most companies al-
                                        $1 million in your retirement savings plan by age 65.
       to do just fine, according                                                    low workers to borrow from
       to research firm CFRA.                          Monthly savings               their 401(k) plans, loans can
         In those instances, going    AGE    Average   to reach $1 million:          put a serious dent in your
                                             balance:
       back to 1946, the S&P 500      25     $14,400   $320                          nest egg. Many plans bar
       has gained an average of                                                      workers from contributing
       nearly 6% in the final quar-                                                  to their accounts until they
       ter of a midterm election             Average   Monthly savings               have repaid the loan. If you
       year and 13% in the year       AGE    balance:   to reach $1 million:         leave your job, you’re usu-
       following the election.        35     $54,700   $500                          ally required to pay off the
         Whatever you do, don’t                                                      balance in as little as 60 days;
       let a fixation on politics                                                    otherwise, it will be treated
       distract you from matters      AGE    Average   Monthly savings               as a taxable withdrawal.
       more important to the          45     balance:   to reach $1 million:         The money you borrow isn’t
       market,  such as the pace             $118,600  $1,060                        invested, which means your
       of earnings and economic                                                      account won’t grow as much
       growth, say strategists                                                       as it would have if you hadn’t
       at Morgan Stanley. In a        AGE    Average    Monthly savings              taken out a loan. Fidelity
       midterm election analysis,     55     balance:   to reach $1 million:         says 20.5% of plan partici-
       they write: “We think in-             $193,500   $3,600*                      pants had an outstanding
       vestors will fare better                                                      loan in the second quarter,
                                   *Because of limits on contributions, most workers with this average balance would need to
       focusing on fundamentals    make additional contributions to an IRA and a taxable account. Note: Based on average   compared with a high of
       and the Fed instead of the   401(k) balances for participants in plans managed by Fidelity Investments. Assumes a 7%   23% in the third quarter
                                   annual return.
       ballot box.”                                                                  of 2013. SANDRA BLOCK
       10  KIPLINGER’S PERSONAL FINANCE    11/2018



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