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How to Maximize Your 401(k) and Save for Retirement

Saving for retirement is one of the most important financial goals we undertake in life. And a 401(k) account, typically offered through an employer, is one of the best tools you have to build your savings in a meaningful way over time, mainly for two key advantages. First, contributions you make to your 401(k) are tax-deferred, meaning your overall taxable income for the year will be lower. Second, many employers provide some level of matching toward a 401(k) and depending on the program, employer contributions can add up to impressive savings for the future.

Using our 401(k) calculator, see how much your account balance could be once you reach your target retirement age using the following information:

Annual Salary: Your total annual salary including any supplementary income.
Contribution Percent: The percentage of your annual salary that you contribute to your 401(k).
Annual Salary Increase: How much you expect your salary to increase annually. Please account for both standard merit raises and cost-of-living increases.
Your Current Age
Retirement Age: The target age you have for retiring.
Current 401(k) Balance: The total amount you have in your 401(k).
Rate of Return: The rate of return you expect your 401(k) investment based on market conditions.
Employer Match: The percentage that your employer currently matches on your 401(k) contributions.
Maximum Employer Match: The maximum percentage your employer will make on your annual salary.

With this information in hand, our calculator will provide an estimate of your 401(k) amount at retirement with or without an employer match.

Why Saving for Retirement is So Important

Planning for retirement is always a good investment to make for your future, but it's hard to know exactly what that future may look like as the economic landscape changes over time. Here are a few reasons saving as much as you can now is so important:

Social Security Benefits: Social Security provides some, but often not enough, income for individuals to live off of during their retirement years. Mainly, it should be counted on as supplemental income. However, with the future of Social Security uncertain, creating a retirement fund based on personal savings is a wise choice.
The Benefits of Compound Interest: Interest is a foe of debt, but a friend of savings. The earlier you can start putting money into accounts with positive returns and compounding interest, the more you can expect to see back in your pocket as you reach retirement age.
Life Expectancy: Our longevity continues to increase with advancements in healthcare and healthier lifestyles, so planning how to support yourself for 10, 20, or even 30 years after retirement is a best practice to maintain your desired style of living.

How to Make the Most Out of Your 401(k)

If you have an employer-sponsored 401(k) where your employer matches a portion of your contributions, here are three good strategies to make the most of the matching program:

Maximize Your Contributions: An employer match for your 401(k) is essentially free money, so take advantage of the full amount if possible.
Know Your Company's Vesting Schedule: Some employers may require you to be with the company for a certain amount of time before they begin matching your 401(k) contributions. Consider these vesting schedules when making career decisions that can impact the growth of your 401(k).
Consistently Increase Your Contributions: As your salary grows, contributions to your 401(k) should grow as well to stay current with your desired lifestyle in retirement. Another tip is to invest any bonuses you receive throughout your career into your 401(k) as well, when able. And don't forget about compound interest! Even small contributions will grow over time. The earlier you start investing the better! Plus, saving for retirement can help at tax time! Contributing to a traditional 401(k) can reduce your taxable income each year and Roth 401(k)s will grow your money tax-free!

If you don't have an employer-sponsored 401(k) and you're contributing to a solo 401(k) as a self-employed individual, here are three strategies to maximize your retirement savings:

Start Early: Compound interest is a powerful tool to grow your savings, so starting early is incredibly beneficial. Even small, consistent contributions can grow significantly over time.
Maximize Tax Benefits: Traditional 401(k) and Roth 401(k) plans both offer advantages when it comes to taxes. Use a traditional 401(k) to reduce your taxable income each year or a Roth 401(k) to grow your money tax-free.
Monitor, Adjust, Repeat: You should routinely review your 401(k) plan to maintain alignment with your retirement goals, then adjust your contributions, re-balance any investments you may have, and keep yourself informed on any changes to its legal structure that may occur over the years.