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how much should you invest in your 401k?

You have a 401k retirement account. Now, what? 

There’s so much conflicting information on what to do with that money, it’s easy to feel a little lost… Or tempted to leave it untouched, picking up virtual dust. Which is the LAST thing you should do if you want to build a nest egg for Future You! 

In this post, we’ll show you how to manage your 401k and IRA cash like a pro, so you can feel confident you’ll have more than enough to sit back and relax when you retire. Mexico, maybe?

👀: 4min read

401k investments options

📸: Pinterest

How much should you put into your 401k or IRA?

Many so-called finance gurus say 10%. 

But 10% is such an arbitrary number – a wild guess, one-size-fits-all answer that won't necessarily get you to the magic number you need to retire. (Which is different for everyone!)

Also, who’s to say you even have the ability to take 10% off your paycheck? 

If you’re trying to pay off student loans, etc. this becomes near-impossible pretty quickly. 

At Penny, we think about retirement differently. 

First, we look at: how much do you NEED to retire…

Then how old you are…

Then what retirement account options you have, and…

Then – finally! – what cash money you have available (aka how it all fits into your bigger picture goals).

Yes, it’s a puzzle. And not the easiest one to solve on your own. That's why we built a simple calculator for this. It’s part of our money quiz and you can access it here

In the meantime, follow the steps below. 

How much do you need to retire?

Women live on average until 81 years old. The average retirement age is 65 in the US. (TIME)

That means you need to be ready to fund a non-working life for at least 16 years. 

Let's call it 20 to make it even – and be honest, do you really want to work until you’re 65? Nah. Best to add extra, to be safe. 

So, think about how much you spend now, per month. How much do you think you’d need to continue living with full financial freedom post-retirement? 

Most people think of a retirement goal of $1 million, so for reference: 

  • $1m for 15 years of retirement = about $5k a month in spending 
  • $1m for 20 years of retirement = about $4k a month in spending 
  • $1m for 25 years of retirement = about $3k a month in spending 
  • $1m for 30 years of retirement = about $2k a month in spending

Now, the question you gotta ask yourself is: 

…will $1 million dollars be enough for you?

And the key here is, to live comfortably. Do you want to nickel and dime when you’re FREE to travel, support your kids/grandkids, pick up a new hobby, etc.? Definitely not!!!

Plus, with inflation (aka the rising price of things) $5k a month will not go as far as it does now. 

So, really give yourself plenty of room to breathe with your budget.

Once you’ve thought about what you want your retirement money goal to be, we can dive into the next step: how much to add into your 401k, and when to start saving & investing. 

When should you start saving for retirement?

The quick answer? TODAY!

You should start saving for retirement as soon as you start making money. And that money you saved into your 401k or IRA? It should be invested. 


The MORE time your money has to grow in a 401k (thank you, accrued interest) – the LESS cash you need to save today (aka more money in your pocket). 

Note how much less you have to save if you start when you’re younger!

  • if you’re 20: put $300 every month into a retirement account, and invest it
  • if you're 25: put $450 every month into a retirement account, and invest it
  • if you’re 30: put $650 every month into a retirement account, and invest it
  • if you’re 35: put $900 every month into a retirement account, and invest it
  • if you’re 40: put $1,400 every month into a retirement account, and invest it
  • if you’re 50: put $3,200 every month into a retirement account, and invest it

What’ll happen by 65? You'll retire with a million dollars. Hello, freedom.

How much should you invest in your 401k?

By now, you should have an idea of:

(a) your retirement money goal, and 

(b) a rough estimate of how much to save per month to get there.

Now, how much of that 401k money should you invest? 

Easy answer.

Regardless of how much money you decide to allocate into your 401k or IRA  – 

100% of the money in your 401k (or IRA) should be invested in a diversified stock and bond portfolio. 

None of the money in your retirement account should be in cash. Zip. Zero. Nada. 


And yes, we go caps lock crazy every time, because it’s literally the most important detail that everyone *forgets* to mention if you want to maximize your retirement accounts. 

If you leave your 401k money untouched, there’s a good chance your cash will lose a lot of its value to inflation. 

Which is why investing is a must to reach those million-dollar goals. 

So, now you know. 

Curious what else you can do for your wallet (and sanity)? 

Take the money quiz, and get retirement plans and money goals tailored just for you. 

(srlsy, it really is that easy. we even created this video to show you how.)

Curious about other money moves?

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