How Much Should You Contribute to Your 401(k)?
Financial objectives and investment goals differ from family to family. The steps you should take to ensure a balanced financial future is based on what you estimate you’ll need. However, finding a benchmark for an appropriate amount of retirement savings at any given time isn’t a bad idea.
The average total 401(k) contribution rate reached 11.2% , with a median contribution rate of 10.4% in 2021, according to Vanguard 401(k) plan data. That is up from 10.8% and 10% respectively, in 2017. These contribution rates consider employer and employee contributions.
So why are Americans still not saving enough for retirement despite these gains?
How much money is needed for a comfortable retirement?
It’s important to make realistic estimates about what kind of expenses you will have in retirement. Be honest about how you want to live in retirement and how much it will cost. One way to begin estimating your retirement costs is to take a close look at your current expenses in various categories, and then estimate how they will change. For example, your mortgage might be paid off by then, but your health care costs will likely rise.
Although there is no “one size fits all” rate for everyone, Fidelity estimates that the average person should expect to spend between 70% of their annual income during their retirement, based on their retirement lifestyle, and healthcare costs. You can use that range to estimate what dollar amount that suggests for you.
The Bottom Line? Saving for your retirement is perhaps one of the most important financial goals that you will ever have. When you can’t (or don’t wish to) work any longer, you will need substantial savings to sustain you, whatever your lifestyle.
Carve out the time to review your savings today! Launch a concrete savings plan if you’re younger or corrective savings course of action if you’re older. Be disciplined about putting money aside now to ensure a financially secure future.
A few ways to get ahead…
Set up an automatic annual increase: nowadays, many 401(k) and 403(b) plans offer the option for step-up contributions
Reevaluate your budget: When you take closer look at what you are spending, you may find costs that you can cut that can be redirected toward retirement savings.
Calculate your time to retirement with Elevation Investment Consulting (Elevation): Finding the right financial advisor that fits your needs doesn’t have to be hard. Elevation is an independent, fee only investment advisory and asset management firm. WE are proud to work with a variety of clients. Our number one goal is to be a resource by providing independent, honest, and competent advice.
Contact Elevation today for a free consultation to see if we are the right fit for you.
For more on saving for retirement check out: Tips to Save for Retirement