How Much to Contribute to Your 401(k)

By Stuart Robertson

Each year, many of us receive a salary bump with our annual review. Of course, it’s awesome to have more money so you can manage your budget or have some extra fun, but what if you used some of it for something your future self will thank you?

Most everyone struggles with how much to put away for retirement. On average, Americans with access to a 401(k) are putting 7.7% of their salary into their account. Not bad. However, most experts recommend saving 10% to 15% over the course of your career to retire at your current standard of living. That may not be doable for everyone, but even a little bit more can go a long way when it comes to amassing a bigger nest egg.

One way to do it is to add just 1 or 2% more towards your 401(k) every time you get a raise. Even saving 1% more than you are today can really add up over the course of your career. After all, there’s always a lingering concern about what Social Security will look like when we reach retirement age, so how much we can save on our own with our retirement accounts is increasingly important. (See what adding 1% or 2% more can mean for your savings. Our 401(k) calculator will automatically show you what it adds up to—and with an added click of your mouse, you can see how long your 401(k) nest egg might last you in retirement.)

To give you a quick idea of the power of saving just a little more, check out these three savers. Each of these three hypothetical people has a salary of $60,000 today, receives a 3% merit raise each year, and will reach retirement age in 25 years:*

Contributing 1% more of your salary can add up

Anne will have over $100,000 more than John. That’s some serious extra moolah. So do your future self a solid and give your 401(k) a raise. It’s well worth it to take five to ten minutes now to consider how 1 or 2% more can help you get on track and potentially avoid a personal retirement crisis.

* This is a hypothetical example for illustrative purposes only and does not represent the performance of any particular investment option. The example assumes a 7% annual rate of return including reinvestment of earnings with no withdrawals. This is not a guarantee of future returns. Actual experience will vary with portfolio selections and changing market conditions. The total account balance does not take into account any federal and state income tax that is typically due upon withdrawal.

Meet the Author

Our low-cost 401k plans are easy to setup online and are supported by our 401k advisors and specialists. ShareBuilder 401k serves small business and medium-sized companies, as well as the self-employed. We offer Roth 401k, Safe Harbor 401k, Traditional 401k, and Solo 401k options. Your 401k plan is paired with investment management expertise and employee education to help you save more.