CLARKONOMICS: Fidelity Investments reports the average amount the average person has in their 401(k) plan has reached its all-time highest level.
New figures show the average person who is contributing to a 401(k) plan at work does so at a rate of about 8% of their annual income. That’s great, but 8% is not enough to have a comfortable retirement unless you also have an employer-provided pension.
I typically recommend people save at least a dime out of every dollar they make. And the strategy I recommend to get that done is the same regardless of whether you’re saving zero right now or already you’re saving 8%.
Every 6 months, I want you to step up your contribution by 1%. It’s like taking baby steps, and you will not notice a change in your lifestyle at all when you do it. If every 6 months is too much for you, do it once a year. And I want you to do this until you save as much as you are allowed wherever you work.
The more you save, the more options you have down the road. Speaking of options, everybody knows we are free agents when it comes to employment these days. Very few of us spend an entire lifetime with one employer.
That’s why it’s so important that you not cash out your 401(k) when you change jobs. I want you to either leave the old 401(K) behind with your old employer’s plan or roll it over into your own IRA or to your new employer’s 401(k) plan.