Is Your 401(k) Savings On Track?

Saving for retirement should be part of every stage of your work life, from your first job to your last years before retirement. A 401(k) or other similar employer-sponsored, tax-advantaged retirement savings vehicle is, for many people, the core piece of their retirement nest egg. The sooner you start, the better; however, as you move through your financial journey, at each stage your goals, the amount of income you are able to contribute, your tax situation, and your risk profile may be different. This will require your 401(k) to evolve along with you.  

How do you know you are on track to meet your retirement goals? Rather than think about it as a number you need to get to by the time you are at retirement age, there are some rules of thumb that can help you check your progress along the way.  

Pegging it to your own current salary can help you create retirement goals that are more meaningful. For example, by age 35, a goal of having between one and two times your current salary saved is a good benchmark. By age 50, the number increases to between three and six times your salary. At age 60, retirement savings of six to eleven times your salary may be more appropriate to your goals.  

The ranges here are broad because career paths vary and so do retirement goals and dreams. Understanding what works for you, and creating flexibility is the most important thing.  

How do you get there? There are some things to think about, and some trade-offs, at every age.

Early Career: What’s Important?  

When you’re just starting out, there are a lot of competing demands on your relatively smaller income. From student loans to paying rent and other living expenses, it can feel impossible to make your paycheck smaller by contributing to a 401(k). However, there are two compelling reasons to prioritize contributions:  

• Starting early means your investment has the longest amount of time to grow. Even small amounts invested in your early years have the potential to grow significantly.

• If your employer offers a matching contribution, you should contribute at least enough to qualify for the match. Otherwise, you’re just leaving money on the table.

Mid-Career: Maxing Out Your Contributions 

As your salary increases, so does your tax liability. Maxing out your 401(k) contributions reduces your taxable income, potentially lowering your taxes. In 2025, the maximum contribution limit is $23,500. Hitting this level will allow you to put the highest amount of tax-advantaged funds to work, so it can be the quickest way to build your nest egg.

The Last Decades: 50+ 

Once you hit 50, the IRS allows you to make an extra contribution, called a "catch-up contribution." In 2025, this amount is $7,500, for a total contribution of $31,000. These are likely to be your highest earning years, and putting away the most money possible has a big impact.  

As you get close to retirement, you may want to dial down the risk in your portfolio by reducing the percentage of equities. However, at this stage, it's even more important to understand if you are tracking to your goals.

Focus on Your Asset Allocation 

At whatever stage you are at, focusing on your asset allocation is important. Beyond determining the risk profile you are comfortable with, deciding on an asset mix that creates diversification is essential to managing volatility.  

Your portfolio investment mix will change over time, as your investments either grow or shrink in various market conditions. This can result in your portfolio straying from the asset allocation you have set and can result in your portfolio becoming overweight in riskier investments. It’s a good idea to rebalance your portfolio at least annually, to bring your investment in line with your desired asset allocation.

Are There Better Uses for the Funds?

As vital as your 401(k) is, it’s not the only consideration. Even if your salary is high enough that maxing out contributions is not a burden, there are some boxes to check first.

Is your "rainy day fund" fully funded? You may need more than you think, especially if your salary or lifestyle has changed. You should have enough saved to cover either 3-6 months of your salary or 3- 6 months of your expenses. Drawing money from a 401(k) if you need funds is expensive in terms of penalties and taxes, and it’s generally a better idea to put money aside in advance than have to withdraw from your retirement funds.

Have you considered a Health Savings Account? HSAs allow you to put money aside for health care costs. Diverting some funds to an HSA may make sense, as they are "triple tax-advantaged," meaning that you contribute with pre-tax dollars, the funds grow tax-free, and they are not taxed when you use them for qualified health care expenses. This is an advantage over funds in a traditional 401(k) or similar account, which are taxed upon withdrawal.

For 2025, the amount you can contribute to an HSA is $4,300 for an individual and $8,550 for family coverage. These accounts also have a catch-provision, allowing those 55 and older to contribute an additional $1,000. It is necessary to select a high-deductible health care plan to be eligible to save in a health savings account.  

Your Goals, Plans and Lifestyle Should Be Considered

Creating a retirement nest egg is just one piece of the retirement puzzle. Are there goals that are more important to you now? If you want to buy an investment property at the beach that you’ll move into once you retire, that may be a more important funding goal in the near-term. Ask yourself: “When do you want to retire? What does retirement look like?”

You also want to consider your entire investment strategy. Retirement plan investment options may be limited, and you may prefer setting up a taxable account where you have more choices that may help you get to your goals. If you have a concentrated stock position from your employer’s stock, you may want to develop a strategy to mitigate the concentration risk. Or, if you have the opportunity to buy and exercise options, diverting funds to that use can be a powerful retirement savings builder.

The Bottom Line 

Contributing to a 401(k) plan is one of the easiest and most effective ways to save for retirement. At each stage of life, your goals and choices may be different, but consistently contributing will keep you tracking toward a comfortable retirement.