4 Important Moves to Make When Your 401(k) Hits $1 Million

Saving $1 million for retirement is a dream that many Americans have — and some people might discover that this dream is suddenly within reach. Fidelity recently announced that 485,000 of its customers have $1 million (or more) in their 401(k) accounts — which is an all-time high. Strong stock market performance in the past few years has caused some people’s 401(k)s to grow faster than anyone expected. If your 401(k) hits $1 million, this is a reason to celebrate. But it’s also an occasion to think about making a few savvy moves to manage your retirement investments. Here are a few next steps to consider taking after your 401(k) hits $1 million.

1. Rebalance your portfolio

If your 401(k) has skyrocketed in the past few years because of strong stock market performance, you might want to change the asset allocation in your account. For example, if you want to have a mix of 60% stocks and 40% bonds in your portfolio, but your stock investments have gone up in price so much that they now make up 70% of your portfolio, you might want to rebalance by selling some stocks and buying more bonds. Many 401(k) target date funds and robo-advisors offer automatic rebalancing, to keep your portfolio from getting too top-heavy (or underweight) on the various types of assets. But if you’re concerned that your $1 million 401(k) has gotten out of alignment with your overall investment goals, feel free to use this moment to rebalance.

2. Re-evaluate your risk tolerance

Hitting $1 million in your 401(k) likely feels psychologically significant. It’s a big number, and you now have more to lose than you did when you were first getting started as an investor. If you’re getting closer to retirement age, or if you’re worried that stocks could go down soon after the S&P 500 reached all-time highs, you might discover that your risk tolerance has shifted. As a 401(k) millionaire, you might want to lock in some gains and stop investing so heavily in stocks. Now that you have $1 million, you might want to shift to conserving the wealth that you’ve built, instead of seeking the highest possible growth (while accepting greater risk of investment loss). Or you might want to stay the course, and keep investing in the same way that you were already. Not everyone’s risk tolerance will change after reaching $1 million in their 401(k). You might still have 10 or more years left until retirement, and feel like a million dollars is not enough for your retirement income goals. There’s no single “right answer” for risk tolerance, and it’s something that every investor has to decide for themselves. But hitting that $1 million 401(k) milestone is a good occasion to catch your breath and ask yourself how much risk you’re really comfortable with — and what ultimate goal you’re trying to reach.

3. Check your investing time horizon

Are you still on track to retire on time? What if hitting $1 million in your 401(k) could help you retire sooner? Now that you have $1 million of retirement savings, you might find that your investing time horizon has shifted forward. What if you could reduce your 401(k) contributions and put that cash toward other purposes, or what if you could invest less aggressively (with more bonds and fewer stocks) to accept possibly lower average annual returns on investment, in exchange for lower risk in your portfolio? Having $1 million in your 401(k) gives you an opportunity to slow down, tap the brakes, and change the way you think about investing and how you want to spend the next few years of your life. Want to keep working hard, saving big, and investing aggressively by buying stocks? Or do you want to try a different approach — quit your job, downshift in your career, semi-retire, or start a business?

4. Consult with a financial advisor

Working with a professional fiduciary financial advisor can help you address all of these topics, and more. Some people might find that hitting $1 million in their 401(k) — while a joyful occasion — is also stressful. More money can bring more complexity and can present tough choices; people might be afraid to make the wrong moves or lose their hard-earned 401(k) wealth that has accrued over many years. A financial advisor can help you understand your options and address your emotions and concerns.

Bottom line

Having $1 million is a great “problem” to have, but hitting seven figures of retirement savings can bring new questions, stresses, and complications. The stakes of managing your 401(k) might feel higher than ever, and some people might worry about making the wrong investment moves. Consider re-evaluating your asset allocation, risk tolerance, and time horizon to conserve your wealth, get more cash in your savings account, and do more of what you want with the rest of your working years. And talk to a fiduciary financial advisor to understand your options and get unbiased professional help — sometimes, staying the course and leaving your investments alone is the best choice.