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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