When “Shark Tank” investor Kevin O’Leary recently appeared on ABC News, an audience member asked him, “What percentage of my salary should I put into a 401(k)?” I’m not sure I’m the recommended amount can easily cover my other living expenses?”
Without hesitation, O’Leary replied: “The number is 15% – and yes, you can do that by stopping buying all the crap you don’t need.” You need to adjust your lifestyle to make sure you 15% back.”
So how exactly is O’Leary on target? Experts weigh in.
How much should you save for retirement?
Pros say 15% is a good goal, although of course it varies from person to person. For his part, certified financial planner Matt Bacon of Carmichael Hill & Associates says, “Somewhere between 10% and 20% works for most people, but it’s not a one-size-fits-all solution.”
The older you are, the more you want to save. “By age 30, you should aim to save 20% of your income and increase that percentage in your 40s and 50s as your income increases over time,” says certified financial planner Julia Lilly of Ryerson Financial.
If you’re trying to figure out how much you want to save, you’re more likely to choose to save more, pros say. “It is unlikely that anyone has ever regretted putting too much money into retirement savings. We should also keep in mind that there are certain dollar limits on the amount we can donate. In 2023, that number is $22,500 and rises to $30,000 for those over 50. I would say the dollar amount is the goal, but if you can’t reach that, then the 15% recommended by O’Leary is a good goal,” says Bobbi Rebell, certified financial planner and founder of Financial Wellness Strategies.
What if you feel like you can’t save enough for retirement?
Start small
It’s okay to start small and it may take some time to ramp up to 15-20% performance. “Any percentage is a good start, 1% is better than 0%,” says certified financial planner Andrea Clark. Some pros suggest starting even higher. “10% is a sufficient amount to start with, but you should save as much as possible, especially with tax-advantaged accounts,” says certified financial planner Joe Favorito of Landmark Wealth Management.
Certified financial planner Bruce Primeau of Summit Wealth Advocates says, “Start with a lower number and increase your savings rate over time.” Let’s say you get a 4% raise in year two. Take home 2% and allocate 2% more to your retirement account. Over time, you will increase your savings rate and net income to keep up with inflation.”
Get the match
Another good place to start? Invest at least as much as your employer pays you, says certified financial planner Alonso Rodriguez Segarra of Advise Financial, because it’s free money. “Always save enough to receive the full employer matching amount and set up the annual car increase that most large employers now have in their plans,” says Clark.
However, don’t neglect expensive debts
Don’t forget other expenses too. Clark says retirement planning “should not come at the expense of paying interest on debts that exceed 10% per year.”
“Remember that it is also possible to invest too much of your salary, especially if it means you “can’t pay your monthly bills or.” [you’re] This creates credit card debt,” says Favorito.
Put salary increases into retirement savings
Even if saving 10% seems like too much, Segarra says that every time you get a raise, half of the increase should go toward increasing your 401(k) contribution. “Over time, you will see your contribution rate increase each year,” says Segarra.
Clark agrees on the raise point: “Spend a third to half of your next raise on retirement savings and remember that money is a tool for preparing for retirement and living your life now,” she says.
Reduce unnecessary expenses
Managing your budget is the first step to ensuring you have enough money set aside. “Avoid as much waste as possible. Writing down a budget makes it easier to see what you really don’t need,” says Favorito. Clark recommends checking bank and credit card statements quarterly to see what you can save and then adding that monthly amount to your 401(k).
Automatically increase contributions
“Many plans allow you to set up an automatic increase in the percentage deducted from your paycheck at certain intervals. This can be a painless way to reach the 15 percent mark,” says Rebell. “The truth is you may not feel the pressure as much as you think because this may be pre-tax money.”
Start early
The ideal is to save aggressively from the start to maximize the power of time. Investing your money can also cause your net worth to increase as you age. “You will need at least 10 times your saved annual salary by age 60, and since not all of your net worth can be spent, you will need an amount greater than 10 times,” says certified financial planner John Bovard of Incline Wealth. To see how compounding works, let’s say you invest $200 every month with a 10% return. In 20 years you would have over $150,000 and 20 years after that you would have over $1.2 million. While $200 per month may seem insignificant, it can actually add up to a significant amount of money in the long run.