What Is the Recommended Amount to Contribute to my Retirement Monthly?
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When it comes to retirement, it’s best to get started with your savings early. This is common knowledge, but when it comes to saving, there are a lot of questions that come up. What exactly is a 401(k)? And, most important of all? How much should be contributing to your retirement savings plan?
A 401(k) is one of the most popular ways of saving for retirement. In short, it’s an employer-sponsored retirement savings plan which is eligible for special tax benefits through the IRS. A portion of your salary will go towards your 401(k), up to an annual limit, and you usually can’t access the money without a tax penalty until you’re 59 ½. This ensures that the money stays safe and can’t be spent until you’re ready for retirement.
When it comes to how much you should invest in your 401(k), there are a few things to keep in mind. The first is that the IRS does set a limit to contributions. For the year 2020, the IRS sets a contribution limit of 19,500. However, if you’re over 50, they will allow you to do “catch up contributions.” This is a type of contribution that allows you to put more money into your 401(k).
So, when it comes to savings, how much exactly should you put in? In general, it’s recommended to put about 10% of your income into your savings plan. Of course, more is probably better, so if you can bump that number up by 5 or 10 percent, that certainly won’t hurt you.
Also, keep in mind that many employers who offer 401(k)s will match contributions to your savings plan. Different employers will offer different matches, so if you’re getting a 401(k) through your employer, find out if they will match your contributions and by how much. It’s really important to get this information and take advantage of any matching your employer does. This is essentially free money that will be going towards your retirement, so don’t pass it up!
A 10% monthly contribution to your retirement savings plan or 401(k) is great if you’re starting young. And if possible, you should try and raise that to about 15% or more as time goes on. But what if you haven’t started saving, and it’s getting late in the game? How do you save for your retirement now? Is it too late?
The answer to that last question is “no.” It’s not too late to start saving! It just means that you might have to save a little more. And remember that even though there is a cap on what you can save for your retirement plan annually, the IRS offers something called to catch up contributions. This will allow you to put some extra savings into your retirement plan if you’re over the age of 50.
The good news about people saving later in life is that the further along in your career you are, the more money you’re making. At age 50, you’re probably at the prime of your earnings. This in turn, along with catch up contributions, makes it much easier to save for your retirement.
So, 10% to 20% of your monthly earnings is generally what you should be putting away in your retirement savings plan, and the later you start saving, the more you should be contributing. But here are a few other things to keep in mind while you’re saving.
The first is what you plan on doing when you retire. Is your idea to spend time at home, relaxing with friends and family? Or do you want to travel? Staying at home will cost you less than if you’re planning on taking your retirement around the world. Also, you should consider the possibility of emergency medical bills. You’ll want to have money put away in that case, too.
Make sure to consider what you want out of your retirement as you save for it. Some lifestyles will cost more than others, and you want to make sure that you can afford the lifestyle you want when the time comes for you to retire.
Thinking about retirement is exciting. You’ll have the free time you’ve been dreaming of traveling, spend with children and grandchildren, or maybe even start a new business. What’s less exciting about retirement is the financial planning that comes before. That’s why it’s important to start saving as early as possible and make sure you understand your retirement savings plan. If your employer offers you a 401(k), be sure to see if they match your contributions. That’s free money going towards your retirement, and you won’t want to miss out on it.
Plus, keep in mind the lifestyle you want to live when you retire. Traveling the world will cost you more than staying at home, so be sure to account for that.
A 10% to 20% contribution of your monthly earnings is best, with 10% being the bare minimum. Bumping that percentage up higher is best since it means you’ll be able to live a more comfortable retirement.