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Is Maxing Out Your 401(k) Enough? Thumbnail

Is Maxing Out Your 401(k) Enough?

 Mike Earl, CFP®, CPWA®

When it comes to saving for retirement, is it good enough to be maxing out your 401(k) – but saving nothing above that? As with most areas of personal finance, the answer depends on your situation.

Each year, the IRS determines the maximum amount an employee can contribute to his/her 401(k). Over time, the maximum amount is increased to account for inflation. Here are the 2019 limits:

2019 max contribution.jpg

Of course, the IRS knows nothing of your personal financial situation. Accordingly, while the goal of hitting the limit for employee contributions is a worthy endeavor, it may not be enough for you. I know this is not an earth-shattering revelation, but it doesn’t get mentioned enough.

If a person is contributing the $19,000 max for 2019 (assuming they are under age 50), here would be their savings rate at various income levels:

savings rates at various incomes when maxing 401k.jpg

If a person is making $75,000 per year and hitting the $19,000 contribution limit, they are crushing it with a savings rate of more than 25%. 

Conversely, for someone making $200,000 per year, reaching $19,000 in contributions is just a 9.5% retirement savings rate. This person should be aiming to invest money for retirement in an additional account. 

Many of our clients open a non-retirement investment account (also referred to by some as a “brokerage account” or “non-qualified investment account”) to save additional dollars. This can be as simple as automatically contributing some dollar amount to an investment account from your checking account each month.

Now, let’s turn to the question of how Americans are doing in saving for retirement. Each year, Vanguard releases a report called How America Saves. Vanguard serves as recordkeeper for about 5 million Americans spread across 1,900 retirement plans. In other words, this is a meaningful sample size.

Within those 5 million retirement accounts at Vanguard, the median employee contribution rate is just 6%. Our goal for clients is to help them save at least 15% of their gross income toward retirement, or 2.5 times the median savings rate in Vanguard plans.

vanguard average deferral rates.png

Here’s the breakdown of contribution rates based on income:

contribution rates.jpg

You can see that higher-income earning folks contribute modestly more to their retirement accounts. However, there is plenty of room for them to be contributing more.

Overall, just 13% of Vanguard’s plan participants reached the maximum contribution amount for 2018. If you are in that 13% group, give yourself a pat on the back. But if you’re a high-income earner, let us help you consider whether you should be saving above and beyond your 401k maximum.

We at the wealth group are here to help you make sure that your personal savings rate is sufficient (or excellent!) for your personal financial situation.


Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.


  1.  https://institutional.vanguard.com/iam/pdf/HAS2019.pdf