Not saving enough — or at all
Once you sign up for a 401(k), figuring out the best amount to contribute is the next hurdle. Your employer may have a default contribution rate of only 3 percent, so it’s best to take control and choose a higher percentage if you can afford it.
How much do most people put away? At the median, the contribution rate is 6 percent, says Alicia Munnell, director of the Center for Retirement Research at Boston College. That means half of workers contribute more, and half less. Employers typically match 50 cents on the dollar on the first 6 percent of pay, totaling a match of 3 percent of pay, Munnell says.
Is that combination enough? Munnell says it depends on when a person starts saving. “For a person starting at 25 and planning to retire at 67, a 9 percent employee-employer combined saving rate might be sufficient to maintain their pre-retirement living standard in retirement.”
But if you want to retire at 62, plan on putting away 17 percent. And if you wait until age 35, save 14 percent if you plan to retire at 67, she says. “Given that many people shift jobs and move in and out of 401(k) coverage, a 9 percent contribution rate is probably inadequate for the vast majority of the workforce,” Munnell says.