How Much Should I Contribute to My 401(k)? - NerdWallet (2024)

FAQs

How much should you contribute to your 401 K? ›

For that reason, many experts recommend investing 10-15 percent of your annual salary in a retirement savings vehicle like a 401(k). Of course, when you're just starting out and trying to establish a financial cushion and pay off student loans, that's a pretty big chunk of cash to sock away.

However, the general rule of thumb, according to Fidelity Investments, is that you should aim to save at least the equivalent of your salary by age 30, three times your salary by age 40, six times by age 50, eight times by 60 and 10 times by 67.

If your employer isn't matching, you may want to put a higher percentage of your income into your retirement plan since you have only yourself to rely upon. If your company was providing a match, you might put in 6% of your salary and receive another 3% from your employer's 50% match.

Financial Samurai 401k Savings Guideline

From the results, the average 30 year old should have between $100,000 – $350,000 saved up in their 401k, depending on company match and investment performance. If you're looking for a realistic goal, then focus on the Middle column all down the chart.

"The ideal contribution rate for retirement depends on a few different factors," says Mark Hebner of Index Fund Advisors in Irvine, California, "but a good sweet spot is 10% to 15%—more towards 15% if you can afford to do so. The bare minimum is 10%."

Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and 2021), or $30,000 in 2023 ($27,000 in 2022; $26,000 in 2020 and 2021) if age 50 or over; plus.

You can retire a little early on $400,000, but it won't be easy. If you have the option of working and saving for a few more years, it will give you a significantly more comfortable retirement.

The 50-30-20 rule involves splitting your after-tax income into three categories of spending: 50% goes to needs, 30% goes to wants, and 20% goes to savings. U.S. Sen. Elizabeth Warren popularized the 50-20-30 budget rule in her book, "All Your Worth: The Ultimate Lifetime Money Plan."

£300k in a pension isn't a huge amount to retire on at the fairly young age of 60, but it's possible for certain lifestyles depending on how your pension fund performs while you're retired and how much you need to live on.

We generally recommend contributing to a 401(k) even if your employer doesn't match, but you might want to pass over the 401(k) if: You can't afford to make any contributions to a retirement account (in which case you should take a hard look at your budget and start planning how you can start saving).

Is a 401k still worth it? ›

The value of 401(k) plans is based on the concept of dollar-cost averaging, but that's not always a reliable theory. Many 401(k) plans are expensive because of high administrative and record-keeping costs. Nonetheless, 401(k) plans are ultimately worth it for most people, depending on your retirement goals.

To get the maximum amount of match, you have to put in 6% of your salary. If you make $50,000, for example, and you decide to contribute the full 6%, that would be $3,000 a year — usually taken out gradually, with each paycheck — and then your employer would contribute half of that, or $1,500.

“By the time you hit 33 years old, you should have $100,000 saved somewhere,” he said, urging viewers that they can accomplish this goal. “Save 20 percent of your paycheck and let the market grow at 5% to 7% per year,” O'Leary said in the video.

Gauging from the survey results, 85.6% of younger millennials have less than $100,000 set aside for retirement. This is similar to the situation with older millennials, of which 83.95% have saved up less than $100,000 for retirement.

As a rule of thumb, experts advise that you save between 10% and 20% of your gross salary toward retirement. That could be in a 401(k) or in another kind of retirement account. No matter where you save it, you want to save as much for retirement as you can while still living comfortably.

Fidelity's guideline: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Factors that will impact your personal savings goal include the age you plan to retire and the lifestyle you hope to have in retirement. If you're behind, don't fret. There are ways to catch up.

The 4% rule is a strategy that says you should withdraw 4% of your retirement savings in your first year of retirement. In subsequent years, tack on an additional 2% to adjust for inflation. For example, if you have $1 million saved under this strategy, you would withdraw $40,000 during your first year in retirement.

401(k) contribution limits

If your employer matched your 401(k) contributions, that match doesn't count toward your employee limit. Together, the limit for your contributions and an employer match is $69,000 in 2024, up from $66,000 in 2023.

One rule of thumb is to set a percentage of every windfall (e.g. 10% or 20%) — whether a bonus or a birthday check — to spend, and save the rest. To get the most out of a bonus, though, many people opt for a 401k bonus deferral and put some or all of it into their 401(k) account.