There are a couple of tips to follow when you decide on how much you should allocate for 401K contribution. This will also enable you to figure out how much you should take out for 401K each month from your gross salary.
Exploit the full amount the employer offers. Otherwise, you would be losing out on the employer benefits and hence losing out on the retirement savings.
Allocate the percentage which is half of your age as savings from your salary. For example, if you are 30 years, you should allocate 15 percent of your salary for savings every month.
You need to decide on the percentage you would allocate for basics, comfort and escape. If you start from the age of 20, you can allot 10 percent of your salary for basics, 15 percent for your comforts and 20 percent for escape. If you start saving at a later date, you need to adjust accordingly.
In case your firm allows automatic enrollment for 401K plan, grab the opportunity as you start saving automatically while working. In this case, workers are by default placed in a plan and the contribution rate is decided by the sponsor. Once your pay increases, your contribution to the plan increases automatically. However, keep in mind that the default contribution rate savings may not sufficient in the long run
Lastly, take your age, health, dependants, other income sources, retirement goals, tolerance to risks, family commitments, etc. before deciding on your contribution. You need to come with a rate which is feasible as well as payable in the long run. In addition, it should not be too much of a commitment from your side on savings and making your daily life uncomfortable.
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