While there’s no universal formula for 401(k) contributions, several key strategies can help clients optimize their retirement savings. The appropriate contribution level depends on various factors, including planned retirement age, expected expenses, desired lifestyle, and additional income sources.

Chelsea Ransom-Cooper, chief financial planning officer at Zenith Wealth Partners, recommends starting young clients at 10% of their paycheck, acknowledging that while this isn’t enough long-term, it allows for other financial priorities like student loan payments and home purchases. She advocates increasing contributions by one percentage point annually, especially after pay raises.

Emphasizing the future tax benefits of saving in a 401(k) resonates with her clients.

Advisors also suggest motivating clients by emphasizing the value of capturing employer matching contributions. Brett Bernstein of XML Financial Group says this “free money” shouldn’t be left on the table and recommends maintaining a holistic financial plan to determine appropriate contribution levels.

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Current regulations require new 401(k) plans to automatically enroll employees at 3% with annual one-point increases until reaching 10%. However, advisors suggest this baseline is insufficient. Todd Feder from Girard recommends employers raise the base rate to 6% and increase the annual bump to 2%, though many established plans resist such changes.

Job changes present a particular challenge to retirement savings. A Vanguard study reveals that workers changing jobs every five years often inadvertently reduce their retirement savings by defaulting to lower contribution rates at new employers. This pattern could cost up to $300,000 in retirement wealth over a 40-year career.

Elizabeth Madonna of Madonna Money Management emphasizes the importance of advisor involvement during job transitions. She recommends immediate consultation when clients change jobs to ensure proper enrollment and contribution levels at the new employer. She advocates starting at 6% or higher when possible and implementing automatic annual increases.

For optimal results, advisors should regularly review client contribution strategies, especially during career transitions, and help clients balance retirement savings with other financial goals while maximizing available employer benefits and emphasizing tax and other advantages that accrue today for saving for the future.

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