How to Save $1 Million In Your 401(k)

  • By Andrea Coombes, MarketWatch
  • March 31, 2015

Time Not On Your Side?
If you’re in your 40s or 50s and thus with less time on your side, then you’ll have to figure out ways to squirrel away more.

“If you start at age 50, a couple putting away $48,000 a year, at age 65 if they earn zero interest they’re going to have almost $750,000,” Gorton said. “If you make modest returns, you can easily be over $1 million.”

Of course, $48,000 is a lot of money. Still, some of the people on the forefront of the financial independence movement embrace the idea of living on much less. Don’t buy a new car. Eat out less. You get the picture.

Take Mr. Money Mustache. The popular blogger and his wife and young son live on about $25,000 a year (they live in Colorado and own their house outright).

A $1 million retirement account “can generate an income of roughly $40,000 a year for many decades, and you can add in any Social Security or other pension income on top of that,” Mr. Money Mustache said in an email interview.

“But I’d advise people with above-average incomes to think even bigger: alongside that trickle of $18,000 a year into the 401(k), put additional savings into a Roth IRA if applicable, and even more into plain old Vanguard index funds in an after-tax account,” he said.

“If you can save more than half of your take-home income and learn to live well on the remainder, you’ll have enough to retire in only 17 years. If you can save two-thirds, your mandatory working career can be under 10 years.”

Other Tips
The Money Mustache way is not for everyone. For example, he does his own home maintenance — a task that not everyone can or wants to do.

The key is to take time now to think about your spending and make sure it matches your values.

“I’m a fan of spending lavishly on the things that are important to you and eliminating the things that don’t matter to you,” Hull said.

Here’s another way to power your savings higher: Find ways to increase income, such asking for a raise or finding an additional income source, such as a part-time job. Then funnel that money into your retirement-savings account.

Also, make sure you’re investing in low-cost index mutual funds. “Don’t try to chase returns,” Hull said.

"Active investors, market timers — they underperform the market,” he said. “It’s going to be a long haul. You’re not going to get to $1 million in five years just by investing in your 401(k)."

This article originally appeared on and is reprinted by permission from, ©2015 Dow Jones & Co. Inc. All rights reserved.

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