I’m 26 making $73k a year – how much should I be saving for retirement today?

I’m a big fan of starting to save for retirement at a young age. So when I came across this Reddit post, it made me happy.

Here, we have a 26-year-old making a modest $73,000 salary. And the reason I’m calling their salary modest is that they live in NYC, where the cost of living is substantially higher than in most other parts of the country.

Despite not earning very much given their geographic location, this poster is saving 5% of their salary in their employer’s 401(k) plan and getting a 5% match. They want to know how much they should contribute to their 401(k) given their limited means. I have some advice, but I’ll caution that there are a lot of wild card factors to consider.

A good benchmark to aim for

Financial experts usually suggest saving 15% to 20% of your pay for retirement. Generally, I tend to agree with this range as a benchmark — but with some caveats.

First, you may have other financial goals you need to tackle before you can afford to allocate 15% to 20% of your pay to retirement savings. If you don’t have a fully loaded emergency fund, for example, that should take priority over a 401(k) when you’re 26. Your 401(k) is money you won’t be able to touch without a penalty for decades, whereas if you encounter a surprise expense in a year or two, you’ll need your emergency fund to fall back on.

Also, it may be that this poster has expensive debt they’re still paying off. I’d recommend contributing enough to their 401(k) to get their full employer match no matter what. But beyond that, I’d encourage them to allocate money to pay off credit cards before saving extra in a retirement plan. Those credit cards could be costing them a boatload of money in interest.

I’ll also mention that the 15% to 20% benchmark above is based on a traditional retirement age. If you’re someone who wants to retire early, then you may need to get on board with saving more like 30% of your pay each year — or more, depending on just how early you want to stop working for good.

Aim to strike a balance

If the poster above were earning $200,000 a year, I’d tell them to try to save 15% to 20% of their pay for retirement. But since they’re earning much less, they’ll need to be realistic. And that advice applies universally.

No matter your age or income, you shouldn’t sacrifice your near-term happiness completely in the course of socking money away for retirement. Rather, there needs to be a balance. If you can comfortably save 7% of your pay, and that allows you to cover your expenses and have a reasonable amount of money left over for leisure and discretionary spending, then that may be a good percentage to go with until your income rises.

Of course, on the flipside, you shouldn’t save nothing for retirement so you can enjoy life to the fullest today. Rather, play around with different scenarios to see what you can manage. Or, even better, consult a financial advisor.

In fact, that’s something I like to tell all people to do. And starting with an advisor in your 20s is a great idea, because if you get professional input at that young an age, you can set yourself on a solid savings path.

So all told, the poster above should keep doing what they’re doing for now — snag their employer’s 401(k) match in full. But they should also discuss their situation with an advisor who can give customized guidance based on the specifics of their finances on a whole.