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Justin has been unemployed for the past year, but now that he's working again, he's unsure how to catch up on retirement savings.

Luckily, Justin was unemployed by choice - he helped his aging parents relocate, traveled, and pursued a personal passion project. He was able to afford to break because he had previously earned about $150,000 a year and followed a disciplined saving strategy.

Although Justin prioritizes enjoying life and spending time with loved ones, he's also focused on long-term financial goals like retirement.

His new employer offers a 401(k) match of 75% on contributions, up to 8% of his salary. Now he's considering putting half of each paycheck into his 401(k) for the rest of the year to make up for the missed savings.

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Meet your match

A 401(k) is an employer-sponsored retirement savings account. You choose a percentage of each paycheck to contribute, and your employer deducts that amount before taxes are withheld. This reduces your taxable income - and you won't pay taxes on the money until you make withdrawals in retirement, when you're typically in a lower tax bracket.

401(k) contributions are invested, usually in mutual funds or ETFs selected by the plan administrator and employer. Over time, these investments can grow tax-deferred.

Many employers, like Justin's, offer a matching program, meaning they will contribute extra money to your account based on how much you contribute, up to a set percentage of your salary. In Justin's case, his employer matches 75% of his contributions, up to 8% of his salary.

However, there are annual limits to how much you can contribute. In 2025, the employee contribution limit is $23,500, with a combined limit of $70,000 between employee and employer contributions.

Those aged 50 and over can make catch-up contributions. For this year:

• Ages 50 to 59 and 64+ can add up to $7,500 extra
• Ages 60 to 63 can make catch-up contributions up to $11,250

So, how much should you save for retirement? A general rule of thumb is to aim for 70%-80% of your pre-retirement income per year in retirement. However, this is a hotly debated subject, and it is something you should consider carefully based on your lifestyle and personal circumstances. For lower earners, such savings rates may be unrealistic.

The one thing that nearly all experts agree on is maximizing your contributions by taking full advantage of employee matching. If you don't, you are essentially leaving free money on the table.

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Cover your bases before you go all-in

For someone like Justin, it might make sense to put a large portion of his earnings into his 401(k) this year. Since he's only working part of the year, he should check with his employer to confirm whether the plan allows him to contribute that high a percentage of his salary.

Because his total income may be lower this year, he should calculate whether contributing to a Roth IRA makes sense. Depending on his income, he may be eligible to make deductible contributions.

How much anyone can or should save depends on an individual's unique circumstances. For example, if Justin had high-interest debt, like credit card balances, it would not make sense to put half his earnings into his 401(k).

Similarly, if someone doesn't have an emergency fund that covers several months of expenses, aggressively saving for retirement should take a backseat. An emergency fund should be a top priority for people at all income levels.

How much you should save for retirement can be a daunting question, but it can be made easier by being realistic about your future lifestyle expectations, saving as much as you can based on your financial situation, and always taking full advantage of your employer's matching program.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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