Dear Johnny Q&A: How much should I contribute to my 401k?
Reader Question: I just started my first job, and my salary is $65,000 per year. How much should I contribute to my 401k? My employer contributes 12% of my salary to my 401k if I contribute a minimum of 8%.
Dear Johnny, congratulations on your first job! Thanks for the great question. The 12% contribution to your 401k from your employer is a phenomenal bonus to a solid first job salary. Obviously, you want to be putting in 8% to max out your employers 12% match. How much you contribute after that is entirely up to you. The 2025 employee contribution limit is $23,500 and the employee + employer contribution limit is $70,000. So, the max you could contribute is 36% of your pretax salary based on your current salary of 65k. I recommend saving 6 months of living expenses then review your monthly budget and max out your contributions with your remaining funds. Adjust accordingly if you are investing in other asset classes.
Let's run a few simple scenarios to give you an idea of the power of compound interest:
8% employee + 12% employer contribution based on 65k salary:
30 years of growth at an 8% return is a whomping $1,472,682
8% employee + 12% employer contribution based on 65k starting salary and 4% raise each year:
30 years of growth at an 8% return is $2,216,259
36% employee (max) + 12% employer contribution based on 65k salary:
30 years of growth at an 8% return is a gigantic $3,534,436
Johnny, good luck to you, stay focused on your health, happiness and financial freedom!