The median amount of retirement savings a family has (according to a 2022 study) is $87,000.
I don't know if you looked at your expenses recently, but that just isn't much money.
The goal of retirement saving is to be able to sustain a living for the rest of your life without having to work.
So, what do you do?
You may have heard that the best time to start your retirement fund was when you turned 18. And if you haven't started yet, the second-best time to start is RIGHT NOW.
You may have a 401k plan through your work – many companies offer this, and most of those that do match your funds.
So, if you are putting 3% into retirement, your company may match 3% into your fund for you.
It's a nice perk that can really help maximize your savings.
You'll often hear how important it is to fund your retirement up to that matched amount.
But here's a better idea: Don't match it – MAX it.
The IRS limits how much can be added to a 401k (by an employee) each year. The limit for 2024 is $23,000.
That DOESN'T include your employer's matched funds, it's just what YOU are putting in.
Most HR benefits platforms can really help out here with the tough math. They figure out how much should come out of each paycheck for your retirement to max out the amount.
The later you start investing in your retirement, the more important this advice becomes.
It FEELS right to donate the match amount. But don't stop there.
If you can handle living off the amount you get AFTER maximizing your deductions, do it. You won't regret it when you see how much faster you're hitting your retirement goals.
If you really can't handle the maximum contribution, then find out what you can manage to give beyond the match amount and do that.
The Impact of Contributing More to Your 401k Over 20 Years
Let’s look at two men, both earning $75,000 a year, who work for companies offering a 3% 401k match.
- Norm decides to fund his 401k with the same 3% that his employer matches.
- King decides to fund his 401k at 5%, getting the same 3% match from his employer.
At the end of 20 years, here’s where they each stand, assuming an 8% annual return:
- Norm (3% contribution + 3% match) has saved $222,403
- King (5% contribution + 3% match) has saved $296,538
By contributing just 2% more each year, King ends up with an extra $74,135 in retirement savings.
Don't just match your 401k, MAX your 401k. Your future self will thank you.
For more on retirement advice and getting started, check out our Retirement Central hub.