Photo of Eric R. Ebbert, CFP®, MBA, CEO Eric R. Ebbert, CFP®, MBA, CEO Jun 05, 2020

Many of us dream of having a comfortable retirement with years of freedom to do whatever we please. However, reaching a comfortable retirement requires work and a consistent investment strategy. Many people choose to invest into their retirement nest egg by using a 401(k).

Investing enough into your 401(k) for a comfortable retirement is like walking across a tightrope. On one side of the tightrope, you might invest too little, leaving you short of your retirement goals. On the other side, you might invest too much, leaving you with insufficient funds for your life now. The trick to reaching your retirement goals without exhausting your current finances is to invest just the right amount.

Factors to consider when it comes to your 401(k) contributions

The right amount to invest into your 401(k) is not the same for everybody. Some people might invest as much as 20% of their paycheck. Others may choose to invest as low as 1%. The right choice depends on your current circumstances and your long-term goals.

Some factors to consider when it comes to the percentage of your income to contribute to your 401(k) include:

  • Your age and how close you are to retirement
  • Your current financial stability
  • Your long-term retirement goals
  • Your employer’s contribution
  • Annual contribution limits (maximum of $19,500 dollars per individual as of 2020, with a $6,500 dollars catch-up contribution for individuals  age 50 or older)

Take a moment to reflect on how these factors play a role in your 401(k) investment decision. If you are over the age of 50 and nearing retirement, it might be time to consider increasing your investment. If you want to get the ball rolling, you might want to consider 2% or 3% of your income and then every six to twelve months add another 1%.  You will be surprised how quickly that will add up.

The recommended 401(k) contribution

Depending on your personal factors, most financial advisors agree that you should invest 10% to 20% of your paycheck into your 401(k). Not everyone can afford to invest 10 to 20%, and  that is okay. You should at least invest a little until you can afford to invest more, especially if your employer is matching contributions.

You should always try to invest at least to the maximum of what your employer will contribute. Their contributions are essentially free money for you to use later in life when you are ready to retire. 

When considering how much to invest, a tool like this 401(k) calculator from NerdWallet can be helpful. It considers factors like your income, age and employer contributions to provide you with a basic estimate of how much you should consider contributing. 

Your 401(k) investment is a very personal decision

Your current financial circumstances, long-term goals, risk tolerance and personal values all matter when it comes to investing in your 401(k). Lining up all of this on your own and navigating the ever-changing fiduciary landscape can be a difficult task. However, you do not have to go about your financial planning alone. At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can help you make the right investment decisions.

Our ProVise financial advisors are highly skilled in navigating the fiduciary landscape and helping people like you reach your long-term goals with personalized financial plans. We can analyze your current circumstances and goals to create a plan for you at a fiduciary standard of care. We offer an unconditional money-back guarantee if you are unhappy with your written plan. Simply return it to us and we will refund 100% of the fee paid.

Are you ready for assistance with your 401(k) investment and other financial goals so you can focus on enjoying your life now? Contact ProVise today to schedule a consultation.