I’m 26 and I’ve been putting 15% pre-tax income into my 401k for years and I feel I’m doing too much

As someone who’s still young and just getting started in their professional career, it can feel tempting to “enjoy life” and spend a bit more rather than save for the future. Indeed, the rise of the YOLO (you only live twice) mentality may entice one to spend every dollar almost as fast as it comes in. With so many of today’s young people living with high-interest consumer (think credit cards) debt, leading some down a paycheck-to-paycheck spiral, it’s become as important as ever to find a better balance between spending and saving.

For this Redditor, 26, who posted on the r/Money subreddit, they’ve been doing well with saving, stashing around 15% of their pre-tax income in a 401(k). At such a young age, I think it’s impressive to have banked around $105,000, with a plan to keep contributing 15-17% of one’s before-tax paycheck. With a 3% pre-tax match from their employer, they’re getting an added shot in the arm.

Personally, I’d be inclined to congratulate the person for staying on top of saving for retirement rather than spending like many other folks in the Gen Z cohort may be inclined to do, partially due to the urge to keep up with appearances on social media platforms.

How much is too much to contribute to one’s 401(k) as a 20-something who’s just getting started in their career?

Despite getting off to a hot start and playing well ahead in the retirement savings game, they have some doubts about whether they’re putting a tad too much into their 401(k) piggy bank. With only limited details in their Reddit post regarding their month-to-month budget and their medium-term and longer-term goals, I’d argue that there isn’t enough info to make a call. For a more personalized recommendation, I’d strongly encourage visiting a financial advisor who can help you set a plan and forget about it as you automate the savings and investing process.

That said, it does sound like they have the flexibility to put an extra percentage point or two of their paycheck away for the long haul. And if they feel they can sustain such an impressive savings rate, I’d say go for the 17%. A dollar earned, socked away, and invested will work out to be a whole lot more a few decades down the road.

How about contributing more than 15% of one’s pre-tax paycheck?

Even if they want to splurge the extra 2% they could have stashed in the 401(k), I wouldn’t be all too against such, especially since a 15% contribution with over $100,000 saved up is a decent place for someone who began saving to build up their nest egg at such a young age. Indeed, many folks don’t climb out of student loan debts until their early 30s. For the most part, many financial experts view 15% as the magic number to shoot for.

Anything more, I believe, is just a nice added bonus to further pad one’s retirement. While I wouldn’t go as far as to say 16-17% is “doing too much,” I do think there’s some flexibility there for the individual to weigh the pros and cons of the additional contributions.

Is a comfortable and potentially early retirement more attractive than having 2% extra cash to spend on various things that one may or may not need? The answer will differ for everyone. Either way, contributing the excess amount seems very shrewd, in my view.

The key thing is ensuring that anything in excess of 15% is now drastically taking away from someone’s present-day budget. With all the inflation we’ve been through, one should have a sufficient emergency fund (many say six months’ worth of expenses, including rent, would suffice) in a liquid account.

The bottom line

This 26-year-old Redditor poster seems to be doing everything right. As such, I’d encourage them to keep it up and give themselves a pat on the back for considering contributing more than the 15% amount that many pundits recommended for 401(k) contributions. 

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