Retirement planning is changing in 2024, and now is the perfect time to take a look at your retirement savings and make sure you’re on track. One of the best ways to save for retirement is through a 401(k) plan, especially if your employer offers matching contributions. The IRS has increased the contribution limits for 401(k) plans in 2024 to $23,000, up from $22,500 in 2023. This gives you even more room to stash away money in this tax-advantaged account. So how much should you aim to contribute?
Follow the 10% rule
Financial experts often recommend saving 10-15% of your gross income for retirement. If you make $60,000 a year, you would want to save $6,000-9,000 annually. With the 2024 401(k) limit of $23,000, the 10% rule means you’d have to be a pretty high earner to start worrying about that contribution limit. For example, if you earn $80,000 per year, 10% of your income is $8,000. That amount is well under the $23,000 contribution limit, allowing you to follow the 10% rule while maxing out the tax benefits of your 401(k).
Determine what you can afford
Look at your monthly take-home pay and expenses. Figure out where you can trim costs and funnel more toward retirement. Even small cuts like bringing lunch to work or canceling unused subscriptions can make a difference.
Ideally, aim to contribute at least enough to get any matching funds from your employer. That’s free money you don’t want to miss out on. If your employer matches up to 5% of income, at minimum you should contribute that percentage.
Consider increasing your contribution by 1%
Can’t commit to 10% yet? That’s OK, and completely understandable. That number is common wisdom in the personal finance world, but everyone’s financial situation is different. To start, wherever you are right now, consider boosting your contribution rate by just 1% this year. That minor change will help grow your nest egg over time without too big a lifestyle sacrifice. And you can repeat it each year until you reach your target savings rate.
The key is to start saving as early as possible and be consistent. If you’re not sure how much to aim for, meet with a financial advisor who can help you fine-tune your savings plan.