Yes, 5% is a good start for a 401(k), especially to get the full employer match (which is free money!), but financial experts generally recommend aiming for 10-15% or more of your income annually (including employer contributions) for a comfortable retirement, increasing the amount gradually as you can to benefit from compounding.
You should minimally put in 5% so you get your match. The typically rule of thumb when saving for retirement is to save about 15%. Maxing out your 401k would be wonderful, but that's going to be close to a third of your pay before taxes, and would probably be a hardship.
Say your employer will match up to 6% of your salary. You should aim to contribute at least that much, if you can, to take full advantage of the employer match benefit. "Matching contributions can be a powerful way to help grow your retirement savings.
For baby boomers, the average 401(k) balance is $249,300 with an average IRA balance of $257,002. For Gen X, the average 401(k) balance is $192,300. The average IRA balance is $103,952. Millennials have an average 401(k) balance of $67,300.
You're absolutely right that mathematically, 6% × 50% = 3%. But the key is that the 6% refers to YOUR contribution limit for matching, while the 50% refers to what portion of your contribution they'll match.
Dave Ramsey says a 401(k) is a great place to begin retirement savings. Ramsey is clear: A 401(k) is a smart way to approach saving for retirement. “If your employer matches your contributions (and most do), you get an instant 100% return on part of the money you invest in your 401(k),” Ramsey wrote.
Financial pundit Dave Ramsey's advice to pause 401(k) contributions while paying off debt forfeits employer match dollars and halts compounding growth. Staying invested through market downturns is a way to avoid missing the reward of the market rebounding.
Average 401(k) contribution rate
You'll want to work toward contributing 10 to 15 percent if you can. You'll also want to consider your employer match—if you're lucky enough to have one. Aim to contribute the maximum percentage your employer will match to make the most of this benefit.
A generous 401(k) match would be a 100% match up to the allowable limits. But any match is considered beneficial since it provides extra money to invest for retirement.
If you're in your 40s or 50s, you still have time in the workforce and, therefore, time to save. Consider the Rule of 72, a simplified formula that calculates how long it'll take for an investment to double in value. If you earn roughly 7% annual growth, your money will double about every 10 years.
While this is a fair increase from the 3.5% average in 2015, it hasn't changed much since 2020. So if you're getting at least 4% to 6% in 401k employer matching in 2025, it's considered a “good” 401k match. Anything above 6% would be considered “great.”
4 common 401(k) mistakes to avoid
Strategies to consider:
Key takeaways
If the interest rate on your debt is 6% or greater, you should generally pay down debt before investing additional dollars toward retirement. This guideline assumes that you've already put away some emergency savings, you've fully captured any employer match, and you've paid off all credit card debt.
Keeping the match isn't guaranteed, however
That so-called free money may come with some strings attached, however. For example, so-called "vesting" requirements may mean workers have to stay at a company for a few years before the money is fully theirs.
The post on Ramsey Solutions recommends going back to your traditional 401(k), 403(b) or TSP workplace retirement plan. Keep bumping your contribution up until you hit 15%. While you're there, make sure you have your account set up for automatic withdrawals.
Here's what your $10,000 could be worth in 20 years
While it's invested, you earn a 10% average annual return. After two decades, your $10,000 would be worth $67,275. That's enough to cover a couple years' worth of retirement expenses for most people, especially when paired with Social Security benefits.
To max out your 401(k) in 2026, you need to contribute up to the IRS limit of $24,500, plus an extra $8,000 if you're 50 or over (or $11,250 if ages 60-63 and your plan allows), requiring a significant portion of your income, especially if starting late; the actual income needed depends on your salary, paychecks per year, and employer match, but aiming for 15% of your income (including employer match) is a good general goal.