How Much Should You Contribute to Retirement?

The enrolment screen gives you a slider and a percentage box, usually on your first day, usually with three other forms open behind it. Nothing on that screen tells you what 11% takes out of a paycheck, or what accepting the default 3% costs over a career, and both of those are answerable in about a minute.

Take the match first, then argue about the rest

The employer match is the only part of this with a guaranteed return, so it comes before every other question. On a $70,000 salary with a plan matching 100% of the first 4%, contributing $2,800 gets you $2,800. Contributing 3% instead means $2,100 matched and $700 a year left behind.

That $700 is not a rounding error. Missed for twenty years and invested at 6%, those contributions would have been worth roughly $25,700. Nothing else in your financial life pays 100% on the day you deposit it.

Match formulas are not interchangeable

A plan giving 100% of the first 4% pays $2,800 on the $70,000 salary and asks $2,800 of you. A plan giving 50% of the first 6% pays $2,100 but asks $4,200 of you to collect it. Both get called a generous match in recruitment material. The second one hands over $700 less and costs $1,400 more to capture, so read the summary plan description instead. Our guide to employer matching works through the common formulas.

Turning a percentage into a paycheck

This is the conversion that changes behaviour. A $70,000 salary paid every two weeks is $2,692 gross per paycheck. Contributing 11% is $296 per paycheck.

Because traditional contributions come out before tax, the hit to take-home pay is smaller than the amount going in. At a 22% federal marginal rate plus 5% state, that $296 costs about $216 of spendable money. You are saving $296 and feeling $216.

The UK version of the same trick is salary sacrifice. On £40,000, a 5% contribution is £2,000 a year, or £167 a month. After 20% tax relief and the National Insurance saving, the effect on take-home pay is closer to £120 a month.

The front-loading trap

If you raise your percentage sharply and hit the annual employee limit in September, and your plan matches per pay period without a year-end true-up, the match stops when your contributions stop. Three months without a match worth $2,800 a year costs $700, which is exactly the amount the higher contribution rate was supposed to be gaining you. Check whether your plan trues up before you front-load.

Using the retirement contribution calculator

Four inputs, and all four have an exact source.

Gross salary. Base pay, plus bonus only if your plan actually matches bonus, which many do not. It is on your offer letter or your last payslip.

Pay frequency. Biweekly is 26 pay periods, semi-monthly is 24, and people mix them up constantly. Your last stub says which one you are on.

Match formula. Both the percentage matched and the ceiling. It lives in the plan documents, not in the enrolment screen.

Traditional or Roth split. The calculator will show the difference in take-home pay immediately, since Roth contributions come out of after-tax money and change your paycheck by the full amount. If you are undecided, our comparison of Roth and traditional accounts lays out when each one wins.

Common questions

Is the 15% target on top of the match, or including it? Including it, in most versions of the rule. If your employer puts in 4%, you need 11% to reach 15% in total. Treating it as 15% from you is more ambitious and worth doing if the money is there.

Should I contribute past the match while I have credit card debt? Usually not. A card charging over 20% is a guaranteed loss that beats any expected market return. Get the full match, clear the card, then come back and raise the percentage.

What happens if I change jobs mid-year? The annual employee limit applies to you, not to each plan. Two employers in one year means two payroll systems that cannot see each other, and it is your job to make sure the total does not exceed the limit.

Does raising my contribution by 1% actually matter? On that $70,000 salary, 1% is $27 per paycheck. It is small enough to survive a pay rise unnoticed, which is why scheduling an increase for the same month as your annual review works better than deciding to do it later.