How much into 401(k)

Question: So, I'm 20 and just got my first grown-up job as an administrative assistant and designer. I'm being offered a 401K, and after I completed my budget, I found that I would be able to comfortably set aside 800 a month. I'm being offered a 401K, where half I put in is matched by my company, and the remaining half is matched by almost an additional half (so if I put in $5, I get an additional $4, for a total of $9 for my $5). Should I put in the full 800 into the 401K, or should I divide it between a savings and a 401K? How much should those making 30K/yr put aside, if they can afford it? Is there a percentage to look to as a goal? Thank you so much! Kacy, Wichita KS

Answer: Congratulations on the job and for taking advantage of the 401(k). You are also living frugally if you can comfortably set aside $800 a month in savings. That's great.

Now, your company offers an incredible match. It's a real boost to your overall compensation. I don't know how long you'll work at this company but I doubt you'll find a similarly generous program anywhere else.

A reasonable rule of thumb is that people should aim at putting 10% to 15% of their salary into their 401(k). This is before taking any company match into account. So, for someone making $30,000 a year the goal is $3,000 to $4,500 a year into the 401(k), or $250 to $375 a month. (Most employer plans allow their employees to contribute up to 15% of salary.)

So, you get to take full advantage of your retirement savings plan and add to your savings account every month. That's a good thing, too. You're young and it's wise to build up some savings for when you might want to change jobs, in case you lose your job during a downsizing, you decide to get some more education, or you relocate to another part of the country. Savings socked away into a taxable account will give you a lot of flexibility.

About the author

Chris Farrell is the economics editor of Marketplace Money.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...