How Much Should You Contribute to a 401(k) Retirement Plan?

401(k) Retirement Planner Sheet

Your 401(k) and retirement plan go hand in hand.

One of the most common questions we get from our clients is, “How much money should I be putting into my 401(k) retirement plan?”

We like this question a lot, because it means people are thinking about their retirement and preparing for it. It also means they have an invested employer, as only 54 percent* of employers participate in a 401(k), according to the U.S. Department of labor.

But exactly how much you should be putting into your retirement plan can depend on a few things: contribution limits, personal circumstances, and the employer match, if you have one.

401(k) Contribution Limits

The IRS determines a maximum annual contribution every year. For 2016, it is:

  •      $18,000 if you are under age 50
  •      $24,000 if you are age 50 or older

Your Personal Circumstances

As a rule of thumb, most experts suggest that you save 15 percent of your income for retirement. Depending on where you are in your career and other financial obligations, this may or may not exceed the maximum annual contribution.

To help you determine how much to save in your 401(k) retirement plan, you may want to consider what kind of retirement you want to have. Do you want to maintain your current lifestyle? Are you planning to retire where you currently live, or is relocation a possibility?

There are many factors that may impact your plan for retirement, including household maintenance, buying a new car, or healthcare costs.

Employer Match

While around 95 percent of 401(k) plans include some type of employer matching contribution, not all programs are created equal, according to the American Benefits Council study in 2014.

For example, most companies require employees to contribute at least 6 percent of their salary per year to receive the full match, per Aon Hewitt. However, the employer may match anywhere between 50 and 100 percent of your contributions.

If you have an employer match for your 401(k), then you may want to consider putting in at least enough to earn the entire match offered. Sometimes, this may make a big difference over the long haul. 

To conclude, how much you should contribute to your 401(k) retirement plan, can be different for every person. It may depend on your income, how much of that you can contribute, what retirement means to you, and the size of your employer match.

Need Help with Retirement Planning?

Guidant Wealth Advisors specializes in helping people plan for retirement. You can get help with everything from saving for your 401(k) to responsible spending for your future.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing in mutual funds involves risk, including possible loss of principal.


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