I never touched a 401(k). Here’s why I still feel good about my retirement

Making the most of your 401(k) is one of the most rewarding retirement planning things you can do. That involves putting away $23,000 today ($30,500 if you’re over 50). This could end up being worth hundreds of thousands of dollars by the time you have to withdraw it.

But saving that much money today isn’t easy, and it’s a feat I’ve never accomplished in all the time I’ve had a 401(k). Now, as a self-employed person, I save in a SEP IRA and have yet to put away $23,000 in a single year. But that doesn’t worry me, and neither should you if you haven’t made it.

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Maxing out your 401(k) is great, but not required

Maxing out your 401(k) is a great retirement savings move if you have the cash to spare and don’t plan on spending it on anything else. But it’s certainly not a requirement for most people. Unless you plan to maintain a lavish lifestyle in retirement, you can save enough without ever approaching your 401(k) annual contribution limit.

Let’s say you think you’ll need to save about $1.5 million to cover your retirement costs. You could get there in less than 24 years if you consistently contributed $23,000 to your 401(k) — about $1,917 a month — and earned an average annual return of 8% on your funds. But if you started earlier, you could also reach that amount by saving just $464 monthly over 40 years, assuming the same average annual return of 8%.

The latter option is much more feasible for most people. Yes, it takes longer, which means you’ll have less time to enjoy your money. But it also leaves you with more money to spend on discretionary spending or purchases throughout your career.

I prefer to aim for a contribution amount that is comfortable for me, but still makes retirement savings a top priority. I try to put away at least 15% of my annual income every year. As long as I do that, I’m pretty confident I’m on the right track.

I also have decades more in the workforce before I can even think about retirement, so that gives me plenty of time to adjust my strategy as needed. I’m also hoping that my income will continue to grow, which can allow me to put away even more money in the years to come.

How to plan your 401(k) contributions.

Instead of wanting to max out your 401(k), set a target percentage of your income or dollar amount you want to save based on your personal retirement savings goal. Use it as a guide.

Keep in mind that if you get an employer match, you won’t have to save all that money on your own. If you decide you need to save 15% of your annual income, for example, and your employer match is 5% of your income, then you should only set aside 10% on your own.

Keep your assignment schedule in mind if you haven’t been on the job for a long time and are thinking about leaving. This determines when you are eligible to keep your employer matching funds if you leave your employer. In some cases, you must work for the employer for six years before you are allowed to keep all the matching contributions you have earned. If you plan to leave before fully vesting, you may want to increase your personal contributions accordingly.

Finally, be aware of annual contribution limits. We have already reached the limits for 2024, but they will likely increase in the coming years. You will also become eligible for catch-up contributions in the year you turn 50. These can be helpful if you weren’t able to contribute as much as you would have liked when you were younger.

Take the time to reevaluate your 401(k) contribution rate at least annually or whenever you experience a change in financial circumstances, such as a raise. Make whatever changes are necessary to ensure you have the money you need today, while doing everything you can to stay on track for your long-term goals.