How Much is “Enough” to Put Into my 401k Regularly?

9e344e349634408da3b4707eefdd5480Retirement is expensive.

For most it’s hard to imagine saving thousands if not millions of dollars for retirement.

It’s also difficult to visualize how regularly depositing money in your 401k impacts the total amount you’ll have when you reach retirement.

Most people have wondered at one time or another: how much is “enough” to put into a 401k regularly? 5%? 10%? 25%?

At a high-level, The Center for Retirement Research at Boston College found that a savings rate of about 15% of income would be sufficient to achieve retirement income targets.

Of course, this rate will only work if a 15% savings rate is picked up at age 25 and used until about 62. Knowing this, you may want to put more or less into your 401k on a regular basis.

Factors that impact suggested 401k savings rate

There are a number of factors that impact whether someone should regularly contribute more or less than the suggested 15% retirement savings rate.

The most obvious situation where someone should contribute more than the suggested 15% to their 401k is if they need to “catch up” on retirement savings. Debt payoff, helping children with college expenses, and other factors may have led someone to not save much for retirement in their 30s, 40s, and even 50s. If someone is within 10 years of retirement and does not have much saved, they should contribute much more than 15%.

Another factor that may impact how much someone should save is when they desire retirement. Early retirement has been a hot topic for those who are ambitious. Early retirement will require a higher-than 15% savings rate because of both the limited number of working years as well as the higher number of years in retirement.

Along the same lines, lifestyle in retirement is an important factor to consider when saving. Many retirees desire to travel, donate to organizations or support dependents with their retirement savings. And while the average retiree will need 70-80% of the pre-retirement income to maintain their lifestyles, adding in small things can easily increase that figure.

Did you know that the maximum 401K contribution for 2015 is $18,000 for those of us 49 and younger? If your 15% contribution is projected to go over that number, you will need to adjust your level to less. In a situation like that, it would make sense to put some money into an IRA or individual stock trading account.

Are you contributing enough to your 401k?

While 15% is certainly a good “benchmark” rate to use when determining if you are contributing enough to your 401k, it’s important to take into consideration the factors discussed:

Years to retirement, current amount invested, desired lifestyle in retirement, and contribution limits are all things that potentially impact the optimal 401k contribution amount.

Spending some time reviewing retirement resources, such as a 15 minute retirement planning guide can help you determine where your sweet spot of 401k contributions is.

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