How much should I contribute to my 401(k)?

By Walter Updegrave, senior editor

(Money Magazine) -- Question: I'm 42 years old. What percentage of my weekly paycheck should I contribute to my 401(k)? --Gary, Bronx, New York

Answer: For anyone still toiling away in his or her career, it's the Mother of All Retirement-Planning Questions: How much of your salary should you contribute to retirement accounts to have a reasonable shot at a comfy post-career life?

Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005)

Yes, I know that many people believe that picking the right investments is the most important thing you can do to assure a secure retirement. And that's not surprising considering how much attention the financial press lavishes on the performance of stocks, bonds, mutual funds, ETFs and dozens of other investment choices.

But while smart investing is certainly important, it's unlikely that even Buffett-esque investing skills will yield an adequate nest egg if you're not saving enough.

Which makes it all the more ironic that your question has no exact answer. There are just too many variables and imponderables to come up with a precise figure. Among other things, the appropriate percentage depends on how much money you already have socked away, the rate at which you expect your savings to grow, the amount of income you'll need in retirement, how much of that income you'll get from Social Security and, of course, how long you'll live.

But even if you were able to know all these things with a high degree of certainty, you still wouldn't come away with a percentage of salary that's 100% accurate. Why? Well, reality can wreak havoc with your planning in many ways.

You might go through a period of joblessness that would disrupt your savings plan. Or an emergency or unexpected expense could force you to dip into your retirement stash during your career. Or you might have to retire earlier than expected for reasons beyond your control. The Employee Benefits Research Institute shows that nearly four in ten workers say they retired sooner than planned, often due to health problems or because they were "downsized" out of a job.

All that said, it's still crucial to try to come up with a reasonable estimate of how much you should be putting away -- a target to shoot for, so to speak -- even though you know the figure won't be right on the mark. Otherwise, you'll have no clue of whether you're on track. Having a savings target will also help make this whole retirement-planning exercise less abstract, especially in the early years when retirement may seem like a far-off mirage.

So how do you come up with such an estimate?

In large part it depends on how much effort you want to put into it. You can get a quick down-and-dirty figure by going to our What You Need To Save Calculator. Just plug in your age, current salary and the amount you've saved to date and voila! The tool will immediately tell you the percentage of pay you should be tucking away.

That figure will vary a lot depending on your specific circumstances. For example, if you're 42, earn $50,000 a year and haven't saved a dime to date, you'll get a savings target of 17.6% of salary. (That figure, by the way, would include any amount your employer kicks in.) But if you've already got, say, $50,000 sitting in a 401(k) or other retirement account, your target drops to 14% of salary.

What makes this calculator simple to use is that it builds in a ton of assumptions so you don't have to plug them in yourself. Clearly, though, the more your plans and behavior deviate from those assumptions, the less meaningful the savings estimate will be.

You can get a more customized estimate by going to more sophisticated calculators such as our Retirement Planner, Fidelity's myPlan Retirement Quick Check and T. Rowe Price's Retirement Income Calculator.

Many 401(k) plans also offer similar tools. Putnam Investments recently launched a new one -- its Lifetime Income Analysis Tool -- that I like because it allows participants to easily see how contributing more, retiring later or investing differently might translate to higher levels of income in retirement. (Memo to Putnam: How about taking a really "revolutionary new perspective" and putting a version on the Web that anyone can use?)

But remember: any calculator, regardless of how elaborate, is only going to give you an estimate. No amount of programming can eliminate the uncertainty of the investment markets, not to mention the vagaries of life and our own behavior.

So as you try one of the tools I've mentioned, I'd like you to keep two things in mind.

First, this isn't an issue you address once and then forget about. Things change -- financial markets, your finances, your life -- and those changes may require adjustments to your savings target. So I suggest you revisit this question every year or so.

Second, given the potential for the unexpected to derail even our best-laid plans, I recommend building in a little margin of comfort. If your savings target is 10%, try putting away another 1% or 2% of salary if you can. That way, if you hit one of life's speed bumps -- a bout of unemployment, a bear market on the eve of retirement, an illness that depletes your savings -- you'll have a cushion to absorb some of the impact.

True, saving more may mean having to get by with a little less today. But you'll appreciate the extra security when you're retired.

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