Saving Too Much for Retirement

Reader Comments
Back to blog

Putting money in early may help get growth early, or it may put you in the market right before a fall. Spreading out the investments over the year achieves dollar cost averaging so that the cost basis for each security is lower on average.

Ned Friend of WA 3:31PM May 21, 2008

The comment about stretching contributions over the year versus up front may well be nonsense, because company matches are a PERCENTAGE, not a fixed amount. So, it doesn't matter how fast or slow you do it, they'll contribute the same dollar amount... 5% of $15k is always going to be the same no matter how fast you get there. Matter of fact, earlier contributions give you more opportunity to experience compound growth.

Mee of NY 5:43PM May 20, 2008

I had a similar situation in 2007. I was on schedule to exceed the $15,500 limit. After talking with my company's benefits manager, he assured me that once I hit the limit, $15,500, the automatic contribution from my pay would pause until the first paycheck in 2008. And it did. I hit $15,500 with my last paycheck for 2007 (the amount was less than my regular amount so I wouldn't exceed the limit) along with the company's relative match.
I would ask your benefits/payroll manager(s) this precise question to ensure your contributions will pause on/about December 31st (or your final paycheck for the calendar year). Then, do your homework and calculate $15,500 divided by your pay periods (mine were 26 p/p) to arrive at a precise answer. Then formulate that number into a percentage if you can contribute only a percentage of your pay into your 401k otherwise use the dollar amount per pay period as your contribution amount.
But, regardless of your company's match, the contribution and its earnings (dividends and capital gains) will grow tax-deferred until you need it for your retirement. It behooves us all to save as much as we can for our retirements, because nobody cares more about your retirement than you do.

Terry 12:43AM May 19, 2008

Wow, a raise from $140K/year to more than $155K/year? Where can I get a raise like that?
The form I filled out to sign up for my retirement plan had an option to contribute a fixed dollar amount per paycheck instead of a fixed percentage. But that means I have to update it when the contribution limit increases, rather than when my salary increases. Six of one, half a dozen of the other.

Johanna of MD 9:17AM May 15, 2008

That is great to know, TJ, thank you!

Kimberly Palmer of 5:59PM May 14, 2008

Many plans have a provision called "lookback match". After the end of the year they look at people like the one described above who have contributed the full amount and did not get their full amount of match because of the timing of their contributions. Then, they give them that missed match. If your plan has it, no need to worry about this issue.
Lookback match is not mandatory, so be sure to find out if your employer does this.

TJ of MA 5:17PM May 14, 2008