.jpg)
The Retirement Power Hour
The Retirement Power Hour
How Much Should I Contribute To My 401(k)?
According to the 2025 Intuit Prosperity Index, 68% of Americans aren’t confident they’ll ever be able to retire. One big reason? Most people don’t know how much they should contribute to their 401(k).
In this episode of The Retirement Power Hour, Joe Allaria, CFP®, breaks down exactly how much you should be contributing to your 401(k)—based on your age, income, and personal situation. You’ll learn:
-Why getting your employer match is non-negotiable
-The “rules of thumb” for 401(k) contribution percentages at different ages
-How to know if you’re on track with your retirement savings
-Simple strategies to increase your contributions (even if you feel behind)
Resources Mentioned in this Episode:
1. Nearly Half of American Households Have No Retirement Savings
2. How Much Do I Need To Save To Retire?
3. Are You On Track?
4. Retirement Insecurity 2024: Americans' View of Retirement
Submit Your Questions
To submit a listener question, visit our website, and enter the details of your question.
Leave a Review
Visit our website to leave a review on Apple Podcasts or Spotify.
Disclaimer:
All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss, and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an Investment Adviser Representative of CarsonAllaria Wealth Management, Ltd., a Registered Investment Advisory firm. The information discussed on this podcast may be derived from third parties that are believed to be reliable, but CarsonAllaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.
Learn more about CarsonAllaria Wealth Management at https://carsonallaria.com/
Invest Wiser & Retire Better!
How Much Should You Contribute to Your 401(k) in 2025?
Joe Allaria:A ccording to the 2025 Intuit Prosperity Index study, 68% of Americans are unsure that they'll ever be able to retire. One of the biggest reasons, nobody knows how much they should be contributing to their 401ks. Well, today we're going to talk about exactly that and tell you how much should you be contributing to your 401 given your income, given your age, given your situation. And we're also going to give you a few strategies to get to that contribution rate if you aren't there yet. Stay tuned.
Joe Allaria:Retirement Power Hour Episode 38: 401(k) Contribution Guide
Joe Allaria:Welcome everyone to the Retirement Power Hour. My name is Joe Allaria. This is episode 38. And today we're talking about how much should you contribute to your 401k. And we always have to make the disclaimer that we are not going to be able to answer that specific question for each and every person watching this. But we're going to give you some guidelines today, again, based on your age, based on your situation, and give you some things to think about and some strategies to improve your retirement situation. So that is what we're doing today.
Joe Allaria:Important Disclaimer: General Education, Not Personalized Advice
Joe Allaria:This isn't necessarily personalized advice, but that's a great reminder. If you want that question answered for you given your specific situation, go to retirement powerhourpodcast.com, click work with me. We'll have a conversation. We'll gather some information from you. And we can put a plan together and give you some projections to show how much should you be contributing? How much can you contribute to your 401k? As well as we can give you some recommendations on other parts of your financial plan as well.
Joe Allaria:Step-by-Step: How to Determine Your 401(k) Contribution Rate
Joe Allaria:So with that, let's jump into what are the steps in determining your 401k contribution rate.
Joe Allaria:Step 1: Maximize Your Employer 401(k) Match (Free Money)
Joe Allaria:Well, step one is just a basic, it's something that we always recommend. If you can do it, do it. And that is get all of the match that your employer is providing. So contribute enough to get that employer match. If your employer will match 4%, as long as you put in 4%, well, then make sure you put in 4%. If they match 50% up to 6%, and you're only doing 3%, well, you're leaving some free money on the table. Now, if it's 100% match, that means you're getting 100% return on your money immediately. As long as you are vested, a lot of safe harbor matches, well, the safe harbor match, you're immediately vested. So if you get a hundred percent match, again, that's like doubling your money immediately. So we don't want to leave that money on the table. We want to do everything we can to get that employer match. So figure out what that is for your plan and your company and start there.
Joe Allaria:Don’t Stop at the Match: Why Most Savers Need to Contribute More
Joe Allaria:Now we don't want to stop there. We want to start there, but we don't want to stop at just getting the match. This is probably the biggest mistake that I see across the board for people in their 401ks is they think, you know what, I'm getting the match, I'm doing what I need to get the match, and that's enough. I can tell you folks, it's probably not going to be enough in the long run. So step one, get the match.
Joe Allaria:Step 2: 401(k) Contribution Rules of Thumb by Age
Joe Allaria:Step two, understand some rules of thumb for contribution percentages to figure out how much should you contribute to your 401k. Now, I do want to note, again, that there are a lot of assumptions that we have to make when people do studies to figure out how much you should contribute. We're assuming a lot of things. And there are a few factors that could make a huge difference in answering that question for you and how much you should contribute. And the first one is when will you retire? Are you going to retire at 65, 67, 70? That could make a really big difference. So obviously, the earlier you retire, the higher your contribution percentage needs to be because you don't have as many years to save, and then you'll have more years of retirement to fund. So when will you retire? Also, we don't know how long you're going to live. So that makes a very big difference. No one really is ever going to know that question for the most part. So if you're 65, you know, you think you got to plan to 85, you got to plan to 90. These 85 would be the a typical life expectancy for a 65-year-old. So that's what we're thinking when we do these plans. And last but not least, will you have any other retirement income? So if you're watching this and you have a pension, well, you might be in a totally different category. Will you have Social Security? Again, most people watching this will, as long as Social Security is still around, which it will be around, but will it give you the full benefits that you're expecting? We don't know. But another factor that we've talked about on our past videos, will you have any semi-retetirement income? Because if you do, if you work part-time, if you've got some self-employment income or something you do on the side, you retire from your full-time job, but then you continue to make some income that can have a very positive impact. And again, it would force you to not need to save as much when you're working.
Joe Allaria:Recommended 401(k) Savings Rates by Decade (20s, 30s, 40s, 50s)
Joe Allaria:So let's say you're in your 20s and your 30s, the target that you're going to need to hit is probably not as high as someone who might be starting saving for retirement in their 40s or their 50s. So if you do a lot of research, what you're going to continuously find in that 20 to 30 category is somewhere around 10 to 15%. That's a good target to save to your 401k. And that includes any employer match. So if your employer is throwing in 5% and you're doing 10, there you go. You're at 15%. Now I don't see a lot of younger people hitting this mark. We'll talk about how to get there in just a few minutes. But 15% in your 20s would be absolutely incredible. 10% would be very, very good, I believe. Once you get into your 30s, again, if you haven't started yet, you need to ramp that up a little bit to try to hit that 15 to 20%, probably when you include that employer match. So if you don't start, though, until you're 35%, according to Fidelity, we'll include a resource in our notes section. But according to Fidelity, you would need to save 18% when including an employer match. If you don't start until you're 35, that number continues to go up higher and higher if you don't start until 40. If you don't start until 45. So the sooner you start, the better. And you'll see a lot of data around that 10 to 15% or just 15%, because that's it's getting close to the average for 20s, 30s, 40s. But again, if you do get into 30s and 40s, you don't want to stay at 15, you'd like to go to 20 to 25%. And that's all according to Fidelity.
Joe Allaria:Catch-Up Contributions and 2025 401(k) Limits
Joe Allaria:Uh now, once you're in your 50s or above, if you haven't saved anything, it's going to be incredibly difficult to save enough in a 15-year period or 17-year period. So what you're likely looking at in that case is an extended retirement date. You're probably not looking at a 67 retirement target date if you haven't started saving for retirement and you're in your 50s. It doesn't mean it's impossible, but it means retirement might need to look a little different for you. Now, how much should you save? You'd love to be able to hit the max contribution allowable in the given year, which does fluctuate year to year. Just as a reference, if you're 50 or older in 2025, the normal contribution is $23,500. The catch up contribution is $7,500. So you'd be able to contribute $31,000. If you're between the ages of 60 and 63, you don't get a $7,500 catch up. You get an $11,250 catch up only for those special years between 60 and 63.
Joe Allaria:What Americans Actually Contribute to 401(k)s (Averages by Age)
Joe Allaria:Now I told you what these studies are saying you should be doing, but what are people actually doing? And this may give you a little hope, help you feel a little bit better, because none of this is to make you feel bad or to make you panic at all. We just want to try to make little improvements and to give you a little perspective. According to again, a recent study, the average employee contribution rate for people between ages 29 and 44 is only 8.7. That's the employee contribution rate. So if you figure the employer contribution is 4% on average, that would get you to 12.7. You know, we're saying 15 to 20% for some of those people. So it's slightly under what you should be doing. The average contribution rate for folks from 45 to 60 is only 10.2%. So if you are doing 8, 9, 10%, you're probably close to the average, but that doesn't mean that you're doing what you need to do. That's why it's so dangerous to talk to your employees and you know, you talk to eight people and you're saving more than than most of them. That doesn't mean you're on track. Or again, you you know you're getting the full match and you just forget about it and you never think about saving more. That's not going to help you in the long run. That's going to hurt you because you're not likely saving enough.
Joe Allaria:401(k) Balance Targets by Age (Income Multiples)
Joe Allaria:How can you gauge if you're on track or if you're not? So, again, Fidelity and some different outlets have put out some balance targets of how much you should have by a certain age. And it all has to do with multiples of your income. The ultimate goal would be to get to 10 times your income by age 67. So, how do you get there? Well, by age 30, a good target would be to have one times your salary saved up. So if you're age 30 and you make $75,000, you would want to have $75,000 saved in your 401k at that time. By age 40, you would want to have three times your salary saved up. So in that same example, $75,000 times three, two hundred and twenty-five thousand. By age 50, the target would be six times your income. By age 60, you're looking at eight times your income, and by age 67, 10 times your income. Once again, this assumes you're going to be working until age 67, because that's when you get your full retirement benefit from Social Security. So those are just some balanced targets that you can use to help measure if you're on track or if you're not on track. Again, these are checkpoints. These are not guilt trips. If you're behind, we just need to have a little bit more urgency to try and get to what these targets are telling us to be at.
Joe Allaria:Action Plan: How to Increase Your 401(k) Contributions
Joe Allaria:And so my favorite part is talking about what you can do right now if you are behind or maybe you're ahead, but what can you do to improve your situation? Well, number one is do what you can now. It all starts with that budget. It starts at taking a look at your financial house. And we would be remiss to tell you just right now, you're watching this video, you got a wake-up call, go in and increase your contribution percentage because that's really not what you should do. So it all starts with making sure your financial house is in order.
Joe Allaria:Order of Operations: Match, Emergency Fund, High-Interest Debt
Joe Allaria:And I love this order of operations. If you think about this, number one, again, get the employer match. That's free money. It's 100% return in most cases. Get that. But number two, build your emergency savings fund. What does that mean? That doesn't mean you're 401k. That just means your checking account and your savings account. Make sure you have three to six months of living expenses stashed away in an emergency fund in case something bad happens. Maybe you lose your job, your car breaks down, you need a home repair, you have to have an emergency fund set aside, and then you can take care of things as they come up that are unexpected. Second thing, pay off high interest debt. So if you have credit card debt out there and it's at 20 to 25%, that has to be such a high priority. And if it's me and I have that out there, I am making huge sacrifices and really cutting down every single place that I can to pay off that credit card debt because 20 plus percent interest is not sustainable over time. If you let that hang around, it's gonna grow, it's gonna balloon, and it will get to a place where you can't pay it off, or it'd be incredibly hard. Uh that you'd need a miracle to get it paid off. So really address that aggressively if that's out there. We can't be aggressively saving to the 401k when you have a bunch of credit card debt. So take care of the emergency fund, take care of the credit card debt. Then you can focus on your 401k. Now, we may even add another category. What short-term goals do you have? If you're going to be buying a home, you're going to need a down payment, you've got to take those things into consideration. But high interest debt, emergency fund, make sure you've got health insurance and those things protected and in place, and then look at your 401k, start to ramp it up at that point.
Joe Allaria:Auto-Increase Strategy: 1% Annual 401(k) Contribution Bumps
Joe Allaria:Where are you at today? Can you budget your way to an immediate one or two percent increase? Can you do that? That would be great. If you can't, then the next best thing to do is to schedule automatic increases over time, maybe just a 1% increase. People really don't understand in many cases how impactful a 1% increase can be if you do it every single year. And the the beautiful thing is hopefully you get periodic salary increases. And so as that happens, you can increase your contribution percentage. If you get a 3% raise, maybe bump your 401k contribution up by 1%. So these are things you can do intermittently at raise time. You can just schedule them to get you from 5 to 10% over a five-year period. So it's not about, you know, it'd be great if you could get there today, but as long as you get there, and if you get there as soon as possible, even doing 1% increases a year, that'll make a huge difference for you down the road.
Joe Allaria:Key Takeaways: 15%–25% 401(k) Savings Targets and Tools
Joe Allaria:So the biggest takeaways, first of all, disclaimer again, not everyone is going to be able to contribute 15% and it's going to work out well for them. You need to understand your situation. And I would encourage everyone, if you really want to know the right answer for you, go to retirement powerhourpodcast.com, click work with me, connect with us, we'll help you, we'll help you build a tailored plan. But on a general level, I think people don't understand where they need to be in terms of their contribution rates. And I think people underestimate where they need to be on their contribution rates. So if you hear 15%, 20%, 25% as a contribution rate target, don't be blown away and don't think that that yeah, that can't be true. No, that's probably where you need to be in that 15 to 25% range, depending on your age. If you start really, really early, you could probably get away with doing less. Uh, but that's that's what you're gonna see when you do the research. So, number one, get the match at your retirement plan, get the match. Number two, try to get in that you know 15% range if you can. Number three, if you're not there yet, use those tools like auto escalation. You know, you can schedule the 1% increase on a lot of retirement platforms, and that's what we recommend if it's allowed or available to you. Just schedule that increase, bump it up 1% a year. If it's scheduled, you don't have to remember to do it, it's just gonna happen. So use those tools to your advantage and for your benefit if you aren't where you want to be at this time.
Joe Allaria:401(k) Series Preview: Contributions, Investments, and Withdrawals
Joe Allaria:With that, we're gonna do a little series actually, and this is part one of the 401k series. Maybe one of the most important things is how much should you contribute. But we're gonna talk about some other things, how to choose your investments in the 401k, how to get money out of a 401k. So stay tuned and watch some of our other videos in this series. But why is this number one? Because you can have the absolute best fund in the world. And if you aren't contributing enough money to it, it's not gonna matter in the long run. So, number one, now you know how much you should contribute. Stay tuned, come back and watch some of our other videos in this series. With that, thank you for watching this episode of the Retirement Power Hour, where we help listeners invest wiser and retire better. Take care.
Speaker:Thank you for listening to the Retirement Power Hour Podcast. All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss, and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an investment advisor representative of CarsonAllaria Wealth Management, a registered investment advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, CarsonAllaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.
