How Much Should You Save in Your 401(k) Plan?

To make sure you’re on track for retirement, you should have an idea of how much you need to set aside to reach your retirement goal.

Know Your Limits — Before you come up with an annual savings target, it’s important to understand how much you’re allowed to contribute to a 401(k) plan. In 2021, workers younger than 50 can save $19,500 in a 401(k), 403(b), or similar plan, while those age 50 and older can save $26,000 annually, an extra $6,500 per year.

Contribution limits usually go up slightly every year; if you’re an aggressive saver, you’ll also want to pay attention to that and adjust accordingly.

At a Minimum, Get Your Match — The first rule of 401(k) plans is to save enough to get your full employer match. You’ve probably heard it before, but not contributing enough to get your employer’s matching contributions
is like leaving free money on the table. Even if you’re not impressed with your company’s 401(k) plan and would prefer to save in some other way, it still makes sense to at least get that free money.

But How Much Do I Really Need? — So you know how much the government will let you save and that you should be contributing enough to get your employer match. But how much should you be setting aside to prepare yourself for a comfortable retirement? That’s the ultimate question.

Unfortunately, there’s no magic number because every individual situation is different. People have different tolerances for risk, market performance varies over time, and everyone has their own idea of an ideal retirement. That’s why it’s best to talk to a financial advisor who can help you determine how much you need. But in the meantime, there are a few rules of thumb that may help you get a sense of where you stand.

One guideline suggests saving a certain percentage of your salary every year for retirement. Between 10% and 15% is usually the recommended number. If you started saving when you were young, your target savings percentage is usually lower, but if you procrastinated, you’re more likely to be looking at having to save 15% or even 20% of your pay to get you on track to a  comfortable retirement. The good news is that your employer match counts in that number, so if your goal is to save 10% and your employer match is 5%, you only need to save 5% of your pay.

what to consider when saving