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How Much Should You Save In Your 401K?

There seems to be two primary schools of thought surrounding 401k retirement plans – you either love 'em or hate 'em. If you're working for an employer who offers 401k plans and have decided to use the account to save for your retirement, you're probably wondering how much you should save in your 401k. Here are some guidelines and tips for deciding how much to save through 401k accounts:

Let employer decide how much you should be contributing. If your employer offers an “employer match” on your 401k contributions, you want to contribute enough to at least gain the full benefit of what your employer will match. If you don't contribute at least the full amount of the employer match, you're losing out on free money, basically.

Let your age and when you began investing determine how much to contribute. One school of thought says you should save a percentage equal to half of your age. If you start investing at the age of 20; you would contribute 10% of your income. If you start at 30, you would contribute 15% of your income. For individuals who start at 20 and contribute 10% of their income for as long as they work before they retire – chances are they'll never have to increase their contributions to match their age (the contribution would naturally increase as the person moved up in their careers and made higher amounts of income). For individuals who don't start contributing to a 401k or any retirement plan until later in life; they would need to increase contributions with each birthday to always contribute a percentage equal to half of their age in order to have enough money to retire on.

Of course, these are just guidelines, and there is no “one-size-fits-all” approach to selecting a savings amount to ensure there is enough money to retire on. Consult a professional financial advisor for assistance calculating your retirement needs and how you intend to get that money saved before you retire.


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