Deciding how much to contribute to your 401(k) is a choice that can shape your future so you must make informed choices. One Reddit user recently asked for help with this issue. The poster is 26, makes $73,000 annually, and is wondering just how much they should be investing. 

The Redditor also provided some details. Specifically, they are currently contributing 5%, their employer match is 5%, and they maxed out a Roth IRA last year and plan to max one out again this year. They have no debt, and they also have $50,000 in a high-yield savings account.

So, what should the poster do about 401(k) contributions? 

Here’s how much to contribute to your 401(k)

There’s both a simple answer and a complicated answer to the poster’s question.

The basic rule of thumb is to save 15% of your income for retirement. Many experts recommend first contributing enough to max out an employer match, then switching over to a traditional or Roth IRA to gain access to more investment options, and then contributing anything left over into the 401(k) again. This is a basic standard rule, and if the Reddit poster follows it, they should be in a good position in retirement — especially since they are starting to save at a pretty young age. 

However, rules of thumb don’t take into account your own specific goals. Say, for example, the Redditor wants to retire as early as possible and they have few financial commitments right now. If that’s the case, then they should contribute as much to their 401(k) as they can afford to, once they have their expenses covered and have saved for any necessary short-term goals.

Investing aggressively at a young age can set you up on a path where your investment accounts grow enough to give you retirement security even if you have to cut back on investing later on when you have more financial commitments like a mortgage and family.  If the Reddit poster could amass a $100K 401(k) balance by age 30, for example, that money would grow to $1.74 million by age 60 even if he never contributed another dime, assuming a 10% average annual rate of return. 

The poster could also take the approach of deciding what he wants his nest egg to be in retirement and working backward from there, using the calculators on Investor.gov to figure out exactly how much to invest each month to reach his target number. This would require being pretty forward-thinking to determine how much income he will need decades from now, although he could also apply another rule of thumb and assume he’ll want 10 times his salary saved by retirement age. 

Making a personalized retirement plan is the key to success

Ultimately, there are lots of different ways to determine how much to save for retirement, and there is no one right answer since the best approach depends on your goals, how much you want to sacrifice now for more security later, and where you expect your career trajectory to go. 

Working with a financial advisor to discuss all these issues can be a good option to set yourself up for the future you want, and it’s worth considering getting this professional help — especially when you are pretty young and have lots of time to put plans in place to build the financial security you deserve. 

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