What is the "common" percentage amount too choose for withholding in a 401K?

Question

Received a helpful explaination about 401K but I need to choose the right amount for me at age 50 with no previous retirment gathered and yet make ends meet from each check .

Answer 1

First, a 401(k) is only relevant if

a. Your company offers one to its employees or
b. You are self employed.

If you work for a company and they offer a 401(K) plan then you should contribute to the maximum you can afford.

There is no magical percentage.

Moreover, if the company makes matching contributions your savings are doubled. So for every dollar you place into your 401(k) your rate of return is already 100% because of the matching contribution and you are earning investment returns on both the company's matching contribution and the amount of your contribution that you would have otherwise paid in taxes.

The 401(k) with a matching employer contribution is a fantastic vehicle for savings. Take full advantage of it.

If you are self employed, I believe you can contribute up to $45,000 per year into a 401(k) plan on a pre-tax basis. Do it to the maximum extent possible.

Bottom line, in either case (employed or self-employed) figure out what is the maximum you can contribute to the 401(k) given your ongoing living expenses and contribute that amount. It is one of the best way to save for retirement.

At 50 you are starting late but better late than never. Do the best you can and its admirable that you are thinking about this now.

Good luck.

Answer 2

If the company matches any part of your contributions, put in at least the amount they will match, assuming it won't put you in a financial hardship. After that, put in as much as you can afford. There really isn't a "common" percentage. And at 50, you need to build up your retirement fund as quickly as possible.