Friday was my most recent payday. I had some expenses to be paid out so before doing so I quickly checked my bank account to see if my paycheck had hit my account yet and ensure that there was enough money in the account to trigger the payment. I was surprised to see that my paycheck was a little larger than normal. I logged in to my company’s payroll system to check my pay stub and see what might have changed. A quick analysis showed that the 401K deduction was smaller than normal. I scanned the Year-to-Date column and noticed that I have maxed out my 401K contributions for the year. This is the second year in a row where I have done so but also only the second year I have EVER done so.
Since being eligible for a 401K, I have always put 10% in and have not wavered from that. I assumed that 10% was a huge portion and would be more than enough to cover my retirement. I asked around to a few family members and friends and quickly found that 10% was much more than most, if not all, of them contributed. This reinforced my beliefs that I was ahead of the game. Once I began diving into personal finance topics I learned that 10% was probably not going to get it done, especially not if I wanted to retire a little earlier than the norm.
Once I had that realization I began and systematic program of increasing my percentage withheld. I started by increasing my contribution by an additional 1% each year on my birthday. This worked well and was easy to remember since this was a nice little birthday present to myself. The other thing I noticed was that my take-home pay before and after each change was not significantly different. It definitely did not impact my cash flow as much as I expected. So, what I decided to do that that point was to increase my percentage every few months. I add an additional 0.5% or 1%, then adjust to that amount for a few months before doing my next increase. Amazingly, I have barely noticed the difference.
Now that I have hit this major milestone two years in a row, I am motivated to do even more. My new challenge will be to see if I can hit this milestone even earlier in the year next year. Additionally, now that my paycheck is more than usual since that money is no longer deducted, I plan on automatically moving that money to some different savings vehicle. For now, I have set up an auto-transfer for that amount from my checking account to my savings account on each payday. As that amount accumulates, I will deploy it in another vehicle to maximize its impact.
4 thoughts on “I Maxed My 401K”
That’s incredible, good for you. That’s some serious discipline and a great tip about ways to work it up if you aren’t saving now. Try 1% and see if it doesn’t really affect you, then inch upward yearly or every few months. That’s great.
Thanks Pete. These types of savings are pretty boring overall but hitting such a milestone certainly gives me a boost.
Great stuff. Depending on if your company matches, and how your 401K is set up, be careful on maxing out too early in the year. In some cases once you stop contributing then your company stops as well.
Good insight, thanks for sharing. My current company is not in a position to match 401K contributions so I did not factor any matching money into my current plans.
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