How Much Do I Contribute To My 401K?

Knowing how much do i contribute to my 401K is key to getting that early retirement you're hoping for. Working backwards in figuring out your retirement needs will help you pay yourself forward by investing just the right amount of money in your 401K.

  1. Estimate your retirement needs and wants. Figuring out what type of retirement you'd enjoy is key to knowing how much to invest in your 401K. If you expect to continue to live in the same fashion as when you are working, you'll need about the same amount of money. However, if your idea of retirement is to buy that big boat and sail away, you will need the money to buy the boat but your living costs may be less.
  2. Factor in entertainment needs and or wants. Once freed from the daily grind of a nine-to-five job, a lot of people choose to travel but traveling may not come cheap. If you're expecting to sail on cruise ships around the world, add a travel section to your retirement budget.
  3. Contribute as much as you can! Regardless of what your retirement wants and needs will be, contributing more to your 401K is always better than less. If you can afford to put aside ten percent of your salary, that's great but every little percent counts. Don't think that an annual contribution of one or two percent won't count – it will add up.
  4. Find out about your company match program. In the past, a lot of companies matches a certain percent of your contribution to your 401K so it was free money which is always good (that's another good reason to contribute as much as you can – even more free money!). However, in today's tough economy, more companies might be cutting back on this bonus. If you're counting on the company match to make up part of your retirement funds, you might need to add in more contribution to make up for the cut back.
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