Episode 72: How Much Should I be Saving in my 401(k)?

Heath Grossman here with Money Wisdom Question Series. Today’s question is in regards to 401(k)s. Specifically, how much should I be saving in my 401k?

Just Starting Out

The short answer to that question is: as much as you possibly can. But realistically, when I sit down with somebody, maybe that’s a little bit on the younger side and just starting out, I try to set the expectation that they should be saving somewhere between 10% to 15% of what they make. It’s a very good goal, something that is certainly achievable for many people.

Increase in Increments

If you’re not there, don’t feel bad. Maybe increase your 401(k) contribution by 1% and do that for six months or 12 months and then increase that by another one percent. If you do that incrementally, it’s not going to feel overly burdensome. All of this is a little bit of a balance. You need to have a certain amount coming in your paycheck to be able to live your lifestyle and put food on the table and pay a mortgage.

5-10 Years From Retirement

If you’re someone that’s getting a little bit closer to retirement, anywhere from 5 to 10 years away, we have to start thinking a little bit differently. We have to start thinking about the income planning aspect of retirement. Retirement is all about making sure that you have enough income coming in to live your lifestyle and do the things you want to do. What we suggest folks do that are 5 to 10 years away from retirement, is start to put together a retirement income plan. This also helps you work backwards mathematically to figure out if you are saving enough in your 401k. If we conduct a retirement income plan and you’re short, that starts to help us understand how much more you need to be saving and make sure that you’ll have enough in your 401(k) to produce enough income for yourself.