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A podcast designed to help retirees and those nearing retirement navigate finances and life planning with expert insights from financial advisor Trevor Lawson. Tune in for practical strategies and inspiring ideas to ensure your retirement years are purposeful, fulfilling, and truly your best chapter yet.
*Securities and investment advisory services offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Branch phone: 919-546-0400.
Trevor Lawson: [00:00:00] Welcome to The Retirement With and On Purpose Podcast. I'm your host, Trevor Lawson, and this show is all about helping you not just reach retirement. But truly thrive in it. You've put in the work. Now let's make sure you can enjoy every moment to the fullest.
Today's episode is another one that's inspired by a recent A A RP article, which you'll find is, is something that I use for a lot of, a lot of my, um, inspiration. They do a very good job of just having, um, timely. Content that's, that's relevant that a lot of pre-retirees and retirees are thinking about.
So I'll link to this article just like I do in previous episodes in the show notes, but it's titled How to Save Like A 401k Millionaire, and it's written [00:01:00] by Tamara Holmes. This is going to give us a couple of tips and best practices for, for those that have done a really good job building up a balance in their 401k, here's how they've done it.
One, one other plug for, for a RP on their website. You can find out how much you're saving with AARP's 401k calculator. So that can be a good, a good calculator to use just to get a sense of where you are. But this is lesson number one. And you, you hear this all the time. You're, you've preached this to your kids and grandkids.
Start early and get the match. So. Fidelity's 401k millionaires are roughly divided between boomers and members of Generation X, the youngest of whom are turning 45 this year. These are people who have been saving for quite some time. These are not people that found some hot stock and added to their 401k and boom overnight.
They had a million dollars. Most of, according to Fidelity's research, and even even what I see in, in practice is most people who've built up a healthy balance in their 401k have been at it consistently for a long time. Let's say you start [00:02:00] saving at age 25. And you are, um, saving until age 65 and you earn a, you earn a 7% rate of return.
So start at 25, save all the way to 65, earning a 7% rate of return. You would need to save about $400 a month to have a total savings of just north of a million dollars at 65 if you waited until 50. Good news is you could still get to a million dollars, um, by 65. The bad news is you would have to start saving almost $3,200 a month, um, and earn 7% on that to create a million dollars by 65.
So compound interest, you hear it all the time. Einstein called it the eighth one of the world. But it's, it's essential, um, to start early to really reap the benefits of compound interest. The article notes as your sal, as your career progresses and you look for new job opportunities, consider retirement plan options as well as salary offers a retirement benefits consultant who has created with [00:03:00] Yeah.
So as you're progressing through your career nowadays, most people will change jobs more than, more than once. Um, but if you are one of those that you know will work somewhere for a couple years, then change. It's important to make. The retirement plan offering at a respective employer part of your consideration.
So that's lesson number one. Lesson number two, and this one, I can't overemphasize enough. It so often gets overlooked, put increases on autopilot. So what does that mean? Many 401k millionaires see their savings rates as a moving target starting this year. Workplaces that have established retirement plans since December of 2022 must automatically enroll eligible employees and increase contributions by 1% each year up to a maximum that can range from 10 to 15% as the company's discretion.
This changes the result of Secure 2.0, secure Act 2.0 of federal law enact in 2022 to bolster retirement savings opportunity. So thankfully, a lot of [00:04:00] workplaces now are auto enrolling you in their 401k plan, and they're making it so that contribution amount increases by 1% a year up to a maximum range.
But I would just be sure that, um, not only that you're saving in your, your workplace plan if it's an option, but it's a good practice every, you know. December or January to go in there and just raise it by a percent if possible. And, um, you know, you, you won't notice much of a difference if you do it in, in short, short increments like that.
But that, that extra 1% a year can have a profound impact on your balance down the road. Lesson three, save aggressively. So 401k millionaires don't scrimp when it comes to fattening their plans, their personal savings rate is above 17% of their pay, not including any employer match. Says that's well above the 9.4% average for all Fidelity Savers in the fourth quarter of 2024.
So aggressive saving. Um, the [00:05:00] over time, the more you make, the more we should try to, we should try to save lesson four, keep a separate emergency fund. This is hard when you're, you know, when you're starting out or you know you're raising kids or you know, life is just throwing you a curve ball. It's hard to have a separate savings account.
Sometimes, oftentimes that ends up being a credit card, but if we can keep. Emergency fund adequately funded outside of the 401k. That'll keep us from having to take loans against our 401k when life happens and thereby make it so that again, interest can continue to work in our favor in the 401k. So keep a separate emergency fund just to avoid having to take loans.
On the 401k over time, so I'm quoting here, you'll typically have up to five years to repay the loan with interest, but in the meantime, that money isn't earning investment returns. And if you make a withdrawal rather than taking a loan, you'll likely owe income taxes on that [00:06:00] money plus a 10% penalty. So if we have a, an emergency fund set aside for, for things that come up that can help us avoid a potential penalty on a withdrawal or, um, not earning interest.
Own the, the loan money over time, less than five, make up for lost time. So the IRS sets multi, multi-tiered limits on how much 401k SRS can contribute to their plans. In 2025, the base limit for people under age 50 is 23,500. From age 50 on, you can kick in an extra 7,500 for a total of 31,000. So it's a very.
Good ambitious goal to set for oneself to try and max out their 401k, you know, up to 23,500 a year between when they start and age 50. Try to get to the point where we're maxing it out, but then at age 50 you can kick in extra 7,500. And then starting this year, thanks to another provision, those [00:07:00] between the ages of 60 and 63 can make even bigger catchup contributions up to 11,250 for a total of 34,250.
So for those ages 60 to 63, you now have an extra catchup contribution, uh, provision that that didn't previously exist. So if you, if you weren't. Late to the game due to raising kids or you know, you just, life made it so that it was hard to put extra money away. Make up for try to make up for lost time by taking advantage of these higher contribution limits as we age.
Lesson six and this one. Also cannot be overstayed enough. Stay the course. The longer you invest in a 401k plan or any other type of investment account for that matter, the more you benefit from compounding returns. Staying the course also means maintaining your savings habits even during periods of stock market volatility.
If the market swings up and down many times throughout the year, [00:08:00] you shouldn't be making changes based on short term market events. And this group is great, is a great example of that. So stay the course, find a diversified mix of funds inside your 401k that have a a strong track record and don't pay attention to the short term fluctuations Really.
Focus on what's in your control, which is saving, increasing your contributions periodically, ideally, every year, and just staying the course. You know, letting, letting compound interests do the rest. You just focus on what you can control and, uh, it, it, it's remarkable and this calculator can attest to that, how much you can actually build up in your plan as time goes on.
Those are just six lessons of 401k millionaires that, um, many of you listeners I know are already practicing. But for those that, um, that maybe need a little motivation or just a little [00:09:00] reassurance, um, consider doubling down on what you're already doing or introducing one of these. In the year ahead. As always, I appreciate your time, appreciate your listening, and I'll look forward to being with you soon.
Take care.
Thanks for tuning in to The Retirement With and on Purpose podcast. I hope you're walking away with new ideas and a fresh perspective on how to make the most of your retirement journey. And remember, retirement isn't the end. It's your time to live with purpose. Until next time, I'm Trevor Lawson. Here's to a fulfilling and thriving retirement.