This article from 2016 has been updated with information for 2018
The more you can save in your 401k while you’re working the better off you’ll be building your retirement nest egg. I believe I can take off my Captain Obvious cape now. You need more than empty words to help you get on track to retirement and there are tangible actions you can take if you need a 401k catch up.
Although a recent study in InvestmentNews points out 45% of Americans indicate they are on track to reach retirement goals, which is an increase from 38% from the 2013 study, that still leaves many workers coming up short when running the projections for their future retirement account balance. There could be a number of factors that contribute to the shortfall: starting too late, not taking full advantage of a match if offered, taking money out of the account for non-retirement purposes or using investment options that were too conservative or, most likely, some combination of all. But you’re in luck, whether you are just starting out or you can see the retirement horizon from your office chair, there are things you can do to ramp up your retirement savings and catch-up.
If you’re young, you have time to make changes to the way you’re approaching retirement savings without much damage to your end result. You can increase your contribution rate, even just a percent or two, and set up automatic increases annually to get back on track. In 2018 the limit on 401k contributions is $18,500. If you need a calculator to help you determine what percentage to set your contribution rate (also called deferral rate) to reach the maximum, there are plenty out there; I like bankrate.com retirement calculators. Keep in mind, depending on your status in your company, or the plan’s stated rules, you may have limits on actually reaching this maximum amount. For instance, you could be limited if you’re considered a Highly Compensated Employee (HCE) or if your employer’s plan has a limit on the contribution percent you can set up. You can check out your employer’s plan documents to determine the specifics that matter to you.