Ask HN: Determining how much you should contribute to your 401k | Hacker News Reader

Ask HN: Determining how much you should contribute to your 401k

2 pointsccdev2 comments

I have no first hand or second hand experience on 401k's, IRA's or other retirement accounts, so how do you figure out what's the right contribution rate for yourself?

4 out of my last 5 jobs have been 1099 employment. They were mostly contract-to-hire or contract with a low hourly pay (think, roughly 25% lower than the average local salary, with none of the taxes withheld). As you can imagine that made it very difficult to save money. I made sacrifices like moving back to live with my parents well into my 30's.

So I'm 33 now and looking to start a retirement plan. Currently I have 2 grand in liquid savings. I have no kids and not married or in a serious relationship. I'll try to get a job that gives me a 401k and figuring out what should I do to make sure my employer matches well. When I start, how much should I be contributing for someone in my situation?

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The standard advice for someone in your situation is, in the short term, to contribute enough to max out your employer match and build up your liquid savings to cover ~6 months of your personal expenses. After that point, you can ramp up saving your retirement. You're behind where you'd want to be at your age, but there is still plenty of time to fix that.

I'll try to get a job that gives me a 401k and figuring out what should I do to make sure my employer matches well.

This is just a term in your salary negotiation, though it is probably less flexible than other numbers because they offer the same term in parallel to essentially all employees (by law). It will generally be phrased as "We will match $X with $1 up to Y% of your salary." You prefer lower Xs and higher Ys at the same level of salary, but when comparing between employers, you can just math out how much free money the company is offering per year and treat it as dollar-for-dollar equivalent with salary.

After you have ~6 months of living expenses in a liquid emergency fund, you should save substantially more than required to max out your employer match. How much more depends on your situation and goals. In your situation, I'd be shooting for probably 15~20% to set a nice high baseline for myself and burn in new good habits. People find it very difficult to adjust up to that number but if you start saving that much immediately out of every paycheck and don't have your lifestyle creep up to meet your new means, it is much easier.

Best of luck!

I would suggest putting in at least as much as your employer matches. Preferably more than that, given that it seems you getting a later start on the 401k savings than many people.

This book may be helpful: https://www.amazon.com/Yes-You-Can-Financial-Life/dp/1401911...

EDIT: As always, beware financial advice from random strangers on the internet. :-)

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