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How Much to Contribute to My 401(k) Retirement Plan?

Employee Benefits

A 401(k) retirement plan is one of the most valuable benefits an employer can offer. It's a great way to help workers fund a secure future using pre-tax dollars, often with the boost of employer matching contributions. Small-business owners who offer a 401(k) plan gain benefits, too: Their firms are more attractive to job candidates and more likely to retain good employees.

How Much to Sock Away?

Those who are ready to starting saving often wonder: How much should I contribute to my 401(k) plan? The sensible investor should aim to build a realistic retirement fund while maintaining sufficient take-home pay for the needs of life today.

retirement calculator comes in handy. It shows you how much you should save each month based on your annual salary, your state of residence, your age, the age you want to retire, your current savings, and whether your employer matches your 401(k) contributions. Plug in the numbers, and voilà — you learn how much to contribute each month to meet your retirement goal. Many calculators will also display your yearly contributions, the effect on your take-home pay, and the tax savings you reap.

Some financial industry experts have developed a generic, rule-of-thumb formula for retirement saving.


Salary Multiple









The right-hand column indicates the amount you should have saved at a given age. If you are 45, you should have three times your current salary saved or invested. If you are 67, you should have eight times your salary socked away.

Enroll Early, Benefit for the Long Term

Though retirement may seem like a long way off for younger employees, not enrolling in a 401(k) at the earliest opportunity is a cardinal mistake if the opportunity is there. There are several compelling reasons to contribute to retirement at the earliest age possible, according to Andrew Schrage, co-founder of the “financial fitness” site Moneycrashers.com.

“First and foremost, it’s very likely that no one is going to do this for you,” Schrage said. “Your kids are probably either too young or dealing with finding a job and paying off student loans to be of any help, and your parents may be worried about financing their own retirement.”

“Next, plenty of folks are living longer these days because of medical advancements and improved health care, so you might need a lot more than you think. Finally, there are several variables that we simply don’t know about that could have a significant effect on your finances during retirement. Social Security and Medicare may or may not be able to pay out full benefits by the time you retire, and health care costs could rise as well. Plus, it’s not a given that tax rates will remain the same over the long term.”

Enrolling early has the additional benefit of maximizing employer contributions. Even if you don't stay at a company more than a few years, you don't want to miss out on matching contributions, tax-deferred investments, and compounding interest on your fund. And because 401(k) plans are portable, all the money is yours regardless of whether or not you stay at that company until you retire (assuming you stay long enough for employer contributions to be fully vested).

If you do change jobs before retirement — and most Americans do — you have several options for your 401(k) plan money. As the Financial Industry Regulatory Authority notes, you can:

  • Leave the money in your former employer's plan;
  • Roll the money over to your new employer's plan, if the plan accepts transfers;
  • Roll the money over to an individual retirement account; or
  • Take the cash value of your account.

Those fortunate enough to have a 401(k) retirement plan and wise enough to fund it strategically have a good chance to see a comfortable nest egg by the time they punch the office clock for the last time.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.