5 Things To Do If You Can’t Max Out Your 401(k) Contributions
The financial press is saturated with articles and stories about how you “must” max out your 401(k) contributions if you want to be financially successful. While putting all you can into your retirement plan is indeed a solid financial strategy, the reality is that most Americans simply can’t do that.
Learn: How Long $1 Million in Retirement Will Last in Every State
Discover: 6 Unusual Ways To Make Extra Money (That Actually Work)
For 2024, for example, the maximum 401(k) contribution is $23,000, or $30,000 if you’re age 50 or older. That’s over $1,900 per month, or $2,500 per month for those 50 and up. Many Americans simply don’t earn enough money to max out a 401(k) plan like that, or they don’t have enough room in their budget after their living expenses to do so.
If you fall into this category, don’t fret. You can still build a sizable nest egg, even if you can’t currently max out your 401(k) contributions. Here are ways to get around that.
Earn More Money
Everyone wants to earn more money, but not everyone is willing to take the steps to actually do it. If you’re looking to max out your 401(k), however, you may have to.
Start with your current employer. Has it been a long time since you received a raise? Are you underpaid compared with your peers? Is there a way to earn a bigger annual bonus? Don’t be afraid to talk to your boss and ask to get paid what you’re worth.
If that’s not a viable option, you’ll have to pick up additional work, either via another job, a side gig or even extra hours where you currently work.
If you do manage to score some additional income, the next part can be tricky. You’ll have to commit to moving all that extra income into your 401(k) plan. If you earned the extra money from your employer, you can simply toss it directly in your 401(k). If you earn it from an outside source, you’ll have to bump up your 401(k) contributions to match your additional income.
Either way, the key is to avoid spending the extra money you earn. It should be earmarked exclusively for your 401(k) savings.
See: How a Trump Win in 2024 Could Impact Your Retirement Savings
Reconfigure Your Budget
If you can’t find a way to boost your income, the only way to get more money into your 401(k) is to cut your expenses. This will free up additional cash flow in your monthly budget, allowing you to make larger contributions.
The easiest cuts you’re likely to find in your budget are discretionary items. Streaming services and subscriptions, for example, may be taking an even bigger bite out of your budget than you imagine, so consider sticking with just one or two at most. If you like to dine out, that’s another expense that’s likely costing you more than you imagine, so focus on eating at home more often.
When you go through your budget line by line, you’ll likely find that with a little sacrifice, there are plenty of places you can save a little money every month. You may even be able to trim your necessities, such as housing and utilities, by moving to a lower-cost area, renting out your additional rooms or keeping a closer eye on your power expenditure.
Pay Off Your Debt
Being in debt is a considerable drain on your cash flow. In addition to the principal you have to pay back, most credit cards charge interest at a rate in excess of 20% annually. This means without some serious attention to your payments, your debt could really spiral out of control.
If you’re looking to find more room in your budget for 401(k) contributions, take the first step of paying off your debt. After your debt is gone, you can allocate that money towards your 401(k) instead, and you’ll be on sounder financial footing overall.
Slowly Increase Your Contributions
Immediately jumping from $0 in contributions to $23,000 isn’t something that most Americans are in the financial position to do. However, if you start small and slowly increase your contribution rate every year, you might find that, in no time at all, you’re actually saving a good percentage of your salary.
For example, if you earn $50,000 per year and sock away 2% of that salary every year — or $1,000 — try bumping that up to 3% or 4% next year. Every year after that, bump up your contribution rate by an additional 1% or 2%. You’ll likely hardly notice the incremental investment, but after a few years, you’ll be saving 10% or more of your salary.
Contribute To Get Your Maximum Employer Match
Even if you can’t max out your 401(k) plan, you should strive to get your full employer match. This is the closest thing to free money that you’ll find in the investment world, and it can pay huge dividends when it comes to building a sufficient retirement nest egg.
Imagine, for example, that you earn $50,000 per year, and your employer offers to match 100% of the first 5% of your salary that you contribute. In this case, you should aim to invest at least $2,500 per year in your 401(k). That amounts to 5% of your salary, and it will entitle you to an additional $2,500 in free contributions from your employer.
While you’re not maxing out your 401(k), you would be effectively saving 10% of your salary every year, which is a goal that many financial advisors suggest.
More From GOBankingRates
I'm a Shopping Expert: 9 Items I'd Never Put in My Grocery Cart
4 Reasons You Should Be Getting Your Paycheck Early, According to An Expert
This article originally appeared on GOBankingRates.com: 5 Things To Do If You Can’t Max Out Your 401(k) Contributions
