How Much Should You Contribute to Your 401K? (It Depends on 3 Things)

401K Contributions Boost Retirement Savings (1)It’s one of my dirty little secrets: I am both a personal finance blogger and the daughter of a prominent financial planner, and yet my retirement savings are nowhere near where they should be.

It gets worse. Until I was about 27, I actually had no retirement savings, other than some money my exasperated father put aside for me in an IRA.

The thing is, I’m hardly alone in this slow-to-save boat. We’re all victims of our own inertia when it comes to retirement savings. It’s very easy to plan on dealing with the issue another day, and of course, that day never comes for a great number of us.

The Powers That Be are well aware of the very human tendency to procrastinate, even when we’re hurting our own best interests. This is why Congress passed legislation in 2006 that allows employers to automatically enroll employees in 401K programs. These automatic programs take 3% to 6% of each paycheck as a retirement contribution, unless the employee opts out.

This is a system of using inertia for the win, and it’s making a big difference. According to a 2011 article from Forbes,

“for employees in plans with auto enrollment, the average participation rate is 82%, compared to an average participation rate of just 55% for employees in plans without auto-enrollment.”

However, even these big improvements are not enough to ensure that everyone will have a comfortable retirement. 3%-6% savings simply will not be enough to cover retirement costs, and so fighting the inertia of retirement savings avoidance is vitally important. Here are three ways even the biggest procrastinator in the world can boost their retirement savings:

1. Take a Page From Stephen Covey

You may know Covey as the author of The 7 Habits of Highly Effective People. One of his many insights in that seminal book is his breakdown of common tasks into four types:

  • urgent and important
  • important but not urgent
  • urgent but not important
  • neither urgent nor important.

We pretty much always take care of the urgent things—crises, deadlines, etc. But the important but not urgent tasks—like saving for retirement—tend to be put on the back burner and then forgotten about altogether.

In order to fight that inertia, Covey recommends scheduling in your important but not urgent tasks, as they are the ones that will really determine whether you meet your life goals.

In terms of retirement savings, it’s not enough to simply allow your automatic 401K contribution to remain at a steady state. You must reassess your needs and savings capabilities regularly. That means scheduling time to work on the next two suggestions.

It’s not enough to know that you need to do them. Give yourself a deadline to work on them, and put that date and time in your Google calendar. Make it a regular date with yourself (or your financial planner), and you won’t be a 65-year-old cursing your 30-something self for doing nothing.

2. Increase Your 401K Contributions

This is possibly the most obvious method for having a good retirement, but that’s like saying “eating less and exercising is the most obvious way to lose weight.” Just because we all know what we need to be doing does not mean that it’s easy to do.

According Jane Bennett Clark of Kiplinger,

“Rather than be content with a 3% to 6% salary deferral, you should be setting aside at least 10%, up to the annual max.”

One method of handling this without feeling that 10% bite all at once is to gradually increase your contribution 1% or 2% per year until you reach your savings goal. This will help you maintain your standard of living without lifestyle inflation since you will generally be able to still take home some part of each year’s raise, while still meeting your goals.

If you know exactly when each year’s raise kicks in, schedule the day and time you will contact HR about raising your contribution, so that it’s easy to take care of.

Stephen Covey would approve.

3. Don’t Put All Your Eggs in the 401K Basket

This is where things get a little trickier for truly inertia-bound individuals. Contributing to a 401K is not only easy (especially if it’s automatic), it generally requires a minimum of decisions from you.

However, relying entirely on a 401K program, or simply taking the default investments offered through that program, is not necessarily the best way to build wealth.

For instance, younger workers who are at the beginning of their careers are generally making a great deal less than they will later in their careers—and therefore paying less in taxes now than they will later on. This means that a Roth IRA account, which is funded with after-tax dollars, could be a much better retirement vehicle for young workers. According to David K. Randall of Forbes,

“with the Roth IRA dollars go in after taxes are paid but come out tax free in retirement, when income, and income tax rates, are likely to be substantially higher.”

It’s prudent for young workers to take advantage of their employer’s 401K as well as open up a Roth IRA and max out the contributions.

If you’d rather scrub floors with your own toothbrush than spend time figuring all of this out on your own, then it’s time to call in a financial planner.

You may have the sense that financial planners are only for the rich, but that simply is not true. A Certified Financial Planner can help you to determine the best course of action for your retirement and will advise you on what you can do to make your financial goals a reality.

At a minimum, you should run your 401k through a quality check like what Blooom offers. They can help you manage your plan for a small monthly fee. This might be a better approach if you’re just getting going.

The Bottom Line

The path to retirement savings is not particularly difficult. The problem is getting past our sense that it’s going to be too hard. In order to circumvent the lazier aspects of ourselves, we need to treat these decisions in the same way we treat our work and family obligations.

Scheduling time to work on retirement savings, scheduling automatic boosts to our 401K contributions, and educating ourselves, either through reading or contacting a financial adviser, will all be tasks you’ll be glad you completed earlier, rather than later, (or even never).

Emily Guy Birken About Emily Guy Birken

Emily Guy Birken is an award-winning writer, author, money coach, and retirement expert. Her four books include The Five Years Before You Retire, Choose Your Retirement, Making Social Security Work For You, and End Financial Stress Now.


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  1. Avatar MyMoneyDesign says

    That’s the first time I’ve seen someone use Stephen Covey to talk about retirement.  🙂  But you are right.  Saving is both important and urgent.  I actually did a post not too long ago where we talked about how you should be trying to hit 16% of your income if you really want to be prepared.

  2. Avatar Money Life and More says

    My goal, right now at least, it to increase my retirement contributions by half of my raise every year 🙂 That definitely fits in with steadily increasing contributions 🙂

  3. Avatar William_Drop_Dead_Money says

    Yep, like she says. I did all of the above, but I started too late. Where were you 30 years ago when I needed to hear that? 🙂

    • Avatar EmilyGuyBirken1 says

      @William_Drop_Dead_Money Sadly, I was only 4 at the time. I wouldn’t have taken my advice on anything back then because I apparently put ketchup on any all foods that I ate.