Is It Time to Increase Your 401(k) and IRA Contributions?

When it comes to saving for retirement, there’s no one-size-fits-all approach. Generally, the more you save, the better. Many experts agree that 10% of your salary is a healthy amount to contribute toward your retirement fund, but setting aside that much can feel overwhelming when you’re also trying to pay bills, create an emergency fund and save for kids’ college. 

Should I Increase My 401(k) Contribution?

The short answer is: It depends. Personal savings goals can vary widely depending on when you plan to retire, if your work provides a pension, whether you have chronic medical conditions and what you would like your lifestyle to look like in retirement. Here’s what to consider when deciding if it’s time to start saving more.

Employer Match

If the company you work for offers a 401(k) matching contribution and you’re putting in anything under this amount, then you’re essentially leaving free money on the table. If your plan offers a match, be sure to increase your 401(k) contribution to at least enough to get all of it. You can always ramp up or scale back your contribution later. 

Just be sure to check your plan documents or speak with your financial advisor to see how often you can change your 401(k) contribution, as it varies from plan to plan.

Annual Limits

The 401(k) contribution limit for 2024 is $23,000 for employee contributions, and $69,000 for the combined employee and employer contributions. If you're age 50 or older, you're eligible for an additional $7,500 in catch-up contributions, raising your employee contribution limit to $30,500. The Roth IRA max annual contribution limit for 2024 is $7,000 for people under 50 and $8,000 for those 50 and older. 

If you’re on track to max these both out, you’ll want to look into other savings vehicles instead of increasing contributions.

Age and Investment History

If you began saving in your 20s, then 10% is generally adequate to fund a healthy retirement. But if you started saving later in life, you’ll likely need to increase the amount you contribute. Experts recommend aiming to have 10 times your annual salary saved by the time you’re 67. 

Current Financial Picture

If you are carrying any high-interest debt or you don’t have an emergency fund in place yet, you may want to hold off on increasing your retirement fund contributions. Focus first on paying off your debt as quickly as possible and building your emergency savings account before putting more money into your 401(k) or IRA. 

Are You on Track for Retirement?

Our financial advisors can help you make a personalized plan and find the solutions that fit your needs. Contact a local Farm Bureau financial advisor to get started.