Maxing out your 401(k) is boilerplate financial advice.
That’s because so few Americans are on track to retire with wealth—as of 2017, workers age 55-64 had saved only $107,000 for retirement.¹
With such bleak numbers, it’s no wonder financial professionals encourage 401(k) maxing. When possible, it’s a simple strategy that can help you reach your retirement goals and avoid a post-career catastrophe.
But consider this—the 401(k) contribution maximum as of 2022 is $20,500. For a single professional making over $100,000, that’s no big deal.
But what if you earn $60,000? Or have a family? Or have medical bills?
Suddenly, $20,500 seems like a much larger pill to swallow!
The simple fact is that saving shouldn’t be your first financial priority.
Before you save, you should create an emergency fund with 3-6 months worth of expenses.
Before you save, you should secure financial protection for your income in the form of life insurance.
Before you save, you should eliminate your debt to maximize your saving power.
Even then, you may not have the financial firepower to max out your 401(k) and make ends meet. It may take a side hustle to supplement your incomes to increase your contribution ability.
A helpful rule of thumb is to at least match your employer’s contribution. It’s a simple way to get the most out of your 401(k) without overextending your finances.
And above all, consult with a financial professional. They can help evaluate your retirement goals, your cash flow, and steps you can take to make the most of your 401(k).
¹ “Jaw-Dropping Stats About the State of Retirement in America,” Jordan Rosenfeld, GOBankingRates, May 13, 2022, https://www.gobankingrates.com/retirement/planning/jaw-dropping-stats-state-retirement-america/#:~:text=According%20to%20a%20TransAmerica%20Center,saving%20 for%20 retirement%20is%2027.