Many people’s jobs offer retirement contribution matching. Always contribute at least to the matching limit for your company. Don’t leave free money on the table, because even with the match you still may not be saving enough.
If your company matches, for every dollar you contribute to your company retirement plan account, it will “match” or contribute a dollar to your retirement account too, up to some limit determined by the company. You get a “free” dollar for each dollar you contribute up to the limit. Why would anyone NOT take this deal… you’d be surprised.
I see a lot of clients who are not fully taking advantage of their company match simply because they did not know they could or more commonly because they did not think they could afford to max out their contribution (contribute to the matching limit of the company, you can ask your HR person what the limit is), because it would decrease their take home pay and they could not afford to live on less.
Let me help you prioritize a little: SAVING FOR RETIREMENT IS THE NUMBER ONE PRIORITY FOR MOST PEOPLE. PERIOD. With the 401k system, people rely on what they save, and how much it has grown (or shrunk) in the market, to live on in retirement. And, most people cannot/do not save enough to retire due to starting late, low wages that do not increase materially, spending too much monthly and many other reasons.
I recommend as a rule of thumb, which should be adjusted once a full retirement analysis is completed, that people save between 15-20% of their PRE-TAX income for retirement.
- You make $100,000/year pre-tax – you contribute $15-20,000/year to your retirement account
- Your spouse makes $100,000/year pre-tax – spouse contributes $15-20,000/year to his/her retirement account
That’s a lot of money, even if it is pre-tax. Saving at that rate will definitely reduce your take home pay in a noticeable way. If you’re barely spending less than you earn each month now (or if you’re spending more than you earn each month), you’re not going to like the change, but having no money to enjoy retirement is worse so, start cutting your monthly spending now.
If your company will match your retirement contribution, you should contribute up to the LIMIT at which your company will match AT LEAST. If your company matches you dollar for dollar up to 7%, you should contribute at least 7% to take full advantage of the match (free money). Even if you just contribute your match, the total is 14% (7% from you and 7% from your company). That’s getting close to what you need.
My preference would be for you to contribute at least 15% to your retirement account besides the match (in the example above that would be 15% saved by you plus 7% matched by your company for a total of 22% saved annually), but for heaven sake, do not leave free money on the table. Contribute AT LEAST TO THE LIMIT OF YOUR COMPANY MATCH.
If your spouse’s place of employment does not have a matching program and you simply cannot live on what you both take home if you are both contributing 15% (optimal for retirement savings), you can reduce your spouse’s contribution as little as possible until you’ve balanced your present take-home needs and your future retirement needs. You won’t be missing out on free money that way because your spouse does not have a matching program. Increase your spouse’s contribution back to 15% once you have decreased your monthly spending or your spouse gets a raise.