Who Wants to Be a Millionaire?

The world loves game shows. Who Wants to Be a Millionaire first aired in August of 1999. It was a massive hit and remains popular today.  After all, who doesn’t want to be a millionaire?

Now 20 plus years later, there are more millionaires than ever before.  Few are game show or lottery winners; most achieved their success by investing, but it hasn’t been easy.

A year ago, I don’t think any of us could have imagined that the stock market would be sitting at new all-time highs a year later.

The COVID-19 pandemic triggered a bear market back in March 2020, which made sense. Most expected the market to stay lower, at least until we understood how much damage it might inflict, given the uncertainties.

But, as you know, the stock market defied expectations, and we experienced the shortest bear market in history: a mere 33 days. Since the March 2020 lows, the S&P 500, Dow, and NASDAQ have rallied an impressive 76%, 75%, and 95%, respectively. The NASDAQ has retreated a bit from its all-time highs, but the S&P 500 and Dow are currently sitting at or near all-time highs.

Interestingly, many retirement savers saw the short-lived bear market as an opportunity—and the steps they took last year boosted their retirement savings significantly. In fact, according to Fidelity Investments, 401(k) accounts with a balance of $1.0 million or more jumped 27% from the third quarter to the fourth.  IRA accounts with $1.0 million or more also soared 23% in the fourth quarter.[1]

The stock market’s impressive increase over the past 12 months certainly aided many to reach $1.0 million or more, but there’s a little more to the story than that.  In 2020, many retirement account savers boosted the amount they saved for the year.

Back in late-2019, the IRS increased the allowable 401(k) contribution amount. Employees could set aside up to $19,500 in their 401(k) in 2020, up from the $19,000 allowed in 2019. This change also applied to 403(b) and most 457 plans. In addition, the IRS boosted the catch-up contribution for employees who are 50 or older to $6,500, up from $6,000.

IRA contributions also increased.  The IRA contribution limit was upped by $500 at the end of 2018. For 2019, 2020, and now 2021, those investors funding IRAs could contribute up to $6,000. Folks 50 or older could contribute up to $7,000.

According to Fidelity, many retirement savers took advantage of the increased contribution limits for 401(k)s and IRAs last year. Fidelity reported that one in three savers boosted their 401(k) contribution in 2020; IRA contributions jumped 35% last year.

It’s also important to note that the retirement savers who reached $1.0 million or more in their retirement accounts did not take advantage of the CARES Act provision for penalty-free early withdrawals. Fidelity revealed that only one out of 10 account holders withdrew funds from their retirement accounts in 2020.

For us, this makes apparent that most millionaire retirement savers stuck to their financial plan and didn’t overreact to the changed economic environment in 2020. And honestly, that’s the key to financial success: develop a personal financial plan and stick to that plan.

At Nicollet Investment Management, we understand that everyone’s needs and goals are different, which requires everyone to develop a personal financial plan. That is what we do. We are proud to offer customized financial planning and investment strategies to each one of our clients.

Our plans are tailored to your specific needs and help you achieve your short- and long-term goals through all the economy’s ups and downs.

If you’re looking to improve your financial situation in 2021 and better plan for your retirement, we’d be happy to help you get started. Our team of investment professionals is standing by, ready to perform an in-depth analysis of your personal financial situation and develop a strategy that meets your current and future needs.

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[1] https://money.yahoo.com/number-of-401k-and-ira-millionaires-hit-new-record-in-2020-212238026.html