For many Americans, saving $1 million for retirement is a goal that they would like to reach. Fidelity recently announced that a record 485,000 of its customers now have $1 million or more in their 401(k) accounts. This is now a reality for a growing number of people.
The rise in million-dollar accounts is due in large part to the stock market’s good performance over the past few years, which has sped up the growth of many 401(k) plans beyond anyone’s expectations.
There’s a lot to be happy about when you reach $1 million in your 401(k), but there’s also a chance to make smart choices about your retirement investments. According to an analysis by The Motley Fool, here are some important things to think about when your 401(k) balance hits this big number.
Rebalance your 401(k) portfolio
If your 401(k) has grown quickly because the stock market has been doing well, you might want to look at how your assets are being invested again. For instance, if your goal is to have 60% stocks and 40% bonds.
But your stock investments have gone up in value so much that they now make up 70% of your portfolio, you might want to rebalance by selling some of your stock purchases and putting more money into bonds. By adjusting your portfolio, you can help keep it in line with your long-term financial goals.
Re-evaluate your risk tolerance
Reaching a $1 million amount in your 401(k) can be a big deal for your mental health. You may have changed how much risk you are willing to take since you first started spending when there was less money at stake. If you are getting close to retirement age or are worried about the chance of a market drop after recent highs, you may be more careful about how you spend your money.
As a 401(k) millionaire, you might want to stop focusing on bold growth and start protecting the money you’ve already made. This might mean putting less money into stocks and switching to a safer mix of investments.
If, on the other hand, you are still a few years away from retirement and think that $1 million might not be enough to meet your living needs in retirement, you may decide to stick with the way you are investing now.
How much danger you’re willing to take is very personal and can’t be answered in a single sentence. However, hitting $1 million is a great time to reevaluate how comfortable you are with risk and make your long-term financial goals clear.
Reevaluate your investment time horizon
When you reach $1 million in your 401(k), you may also want to change your plans for when you will retire. Are you still planning to retire at the age you had planned, or has this cash milestone made it possible for you to retire earlier?
Now that you have $1 million saved, you might want to change how much you put into your retirement account or spend less aggressively, choosing a portfolio with more bonds and fewer stocks. It’s possible that this approach will lead to lower average returns, but it will also lower the risk in your portfolio.
Having a big nest egg for retirement lets you change your mind about your goals for the future. You could choose to keep working hard and saving a lot, or you could look into other choices, like stepping back from your career, going into semi-retirement, or even starting a new business.
Seek advice from a financial advisor
When trying to figure out how to manage a $1 million 401(k), talking to a professional financial advisor can be very helpful. While meeting this financial goal is something to be happy about, it can also cause stress and worry. It can be scary to make decisions when you have a lot of money because you don’t want to mess up or lose all of your money.
A financial advisor can help you think through your choices, deal with your worries, and give you skilled, unbiased advice. They can help you make smart choices that will help you reach your long-term goals, whether that means sticking with the investments you already have or making changes to keep your money safe.
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