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401(k)s Are Turning More People Into Millionaires
Waiting on a million // Image by Kait Cunniff via DALL-E
A record number of Americans are now millionaires thanks to their 401(k) balances.
Why It Hits: The “401(k) millionaire club,” as coined by The WSJ, demonstrates the wisdom of betting on the stock market and the power of compound interest — rewarding those who consistently stashed part of their paycheck away over the course of decades. That’s why 82% of the new class of millionaires are over the age of 50, per Fidelity.
Behind The Accounts: Having over $1 million in assets is more common now than ever before.
Fidelity reported that there are now over 654,000 millionaires investing through brokerage firm, while T. Rowe Price says 2.6% of its participants have recently crossed the seven-figure threshold.
That surge in new millionaires is due to half of private-sector workers now saving in 401(k)s, which are primarily invested in stocks… and stocks have reliably been a growth narrative for the past few decades.
And they’re investing more of their paycheck, with Vanguard finding that the average paycheck-participation rate hit a high of 7.7% last year.
Final Balance: For the last hundred years, being a millionaire seemed like an unattainable dream that promised financial easy street. But as inflation and cost-of-living expenses have skyrocketed, so has the spending power required to feel wealthy — 40% of US households are unlikely to maintain their standard of living in retirement even with a seven-figure nest egg, according to the Center for Retirement Research at Boston College.
That’s why UBS Global Wealth Management calls those with a little over $1 million in their 401(k) “moderate millionaires” — a group that has quadrupled to 52 million worldwide since 2000, including about a thousand added per day in the US last year.
Paul Donovan, chief economist at UBS’s wealth-management practice, says people now need at least $5 million to spend like a “stereotypical millionaire.”
The Future: The new middle class may soon be considered those who have reached “moderate millionaire” status.
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Today’s email was written by David Vendrell.
Edited by Nick Comney. Polled and Copy-edited by Kait Cunniff.
Published by Darline Salazar.