Approximately what percentage of my pay, pre-tax and post-tax, should I be investing for my retirement? After I get the full employer match, should I focus on the Roth IRA?

December 4, 2014

Great question, this is an area I really enjoy making sure people get off saving on the right path. 

 

Your question involves a number of variables including your current and expected future income, your investment options in your employer plan (your ability to diversify), and the cost of investing in the plan. 

 

The old rule of thumb was to save 10% over your lifetime. My target for most younger individuals is 15% since we expect less in future retirement benefits, and our costs are continuing to rise for those we do have. 

 

My bias towards investing is we should favor saving where we have greater control, if it makes sense from a tax perspective. Using a Roth IRA when you are younger can have a number of benefits in the future. I often recommend individuals contribute up to a match, then weigh their options. Your Roth IRA you will always have control over where you send your money; your employer plan is likely to change over time. After maximizing a Roth, it can make sense to look back at the employer plan, or to a taxable account. 

 

It is great that you have such a generous company match. We saw in the last downturn, and even still today, that we can't count on those matches. It will be more difficult to jump from 4% to 15% than it would be if you saved more today. 

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