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How Much Should I Contribute to My Retirement Plan?

By FinanceBuddy Staff Writer

Contributions to your retirement plan should be based on several factors. How much can you afford to contribute now and how much do you think your expenses will be when you retire? If you think you will still be paying on the mortgage, plan to put away a little more money. Perhaps your home will be paid for and you can save a modest amount for the golden years.

Five percent to six percent of your annual income is a good starting figure. If you think you will need more, plan to contribute seven percent or eight percent. Also, try to participate in a retirement plan that your employer also contributes to. If possible, put overtime, bonus, and holiday pay into your retirement plan.

There are also computer programs that you can use to help you budget your expenses and help you put a certain amount into a retirement plan. You can have more than one plan. For example, you can contribute four percent to you 401k plan and your employer contributes two percent, and you can have an IRA or even a savings account. Take proceeds from anything you sell and place it into a retirement account. The interest from these accounts grows over time and can add a substantial amount to your retirement.

Try to live frugally and keep expenses low. Check and see when you can make changes to your current retirement plan. If you are doing well, increase the amount of the contribution by one or two percent. Always check on the amount of interest your money is earning, as well as any charges you may incur. Every penny you save can gain interest and help towards your final goal in retirement.