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Retirement planning is evolving in 2025, making it an excellent time to review your retirement savings and ensure you're on track. These changes, introduced by the Secure Act 2.0 passed in 2022, aim to improve retirement savings opportunities and streamline processes for "max savers."
One of the most effective ways to save for retirement is through a 401(k) plan, especially if your employer offers matching contributions. The IRS has raised the contribution limit for 401(k) plans in 2025 to $23,500, up from $23,000 in 2024. This provides you with more opportunities to save in this tax-advantaged account. With these updated limits, how much should you plan to contribute this year?
Adhere to the 10% rule
Financial advisors recommend saving 10-15% of your gross income for retirement. For instance, if your annual salary is $60,000, you should aim to save $6,000 to $9,000 each year. With the 2025 401(k) contribution limit set at $23,500, the 10% rule means you’d need to have a high income to hit this contribution cap. For example, if you earn $80,000 annually, 10% would be $8,000, well below the $23,500 limit, allowing you to follow the 10% rule while fully benefiting from your 401(k)’s tax advantages.
Higher catch-up contributions for those nearing retirement
Another significant update this year: Employees aged 60 to 63 can now contribute more to their 401(k) plans, with new limits of $10,000 annually or 150% of the standard catch-up contribution limit—whichever is greater.
The increase in catch-up contribution limits offers a great chance for workers to strengthen their retirement savings during their highest earning years. According to Vanguard’s 2024 How America Saves report, more than half of 401(k) participants with incomes over $150,000 and nearly 40% with balances above $250,000 made catch-up contributions in 2023.
Assess what fits within your budget
Review your monthly income and expenses. Identify areas where you can cut back and redirect those savings toward your retirement. Even small changes, like bringing lunch to work or canceling unused subscriptions, can have a significant impact.
At the very least, aim to contribute enough to take full advantage of any employer match. That’s essentially free money you shouldn’t overlook. For instance, if your employer matches up to 5% of your income, you should contribute at least that amount.
Strive to increase your contribution by at least 1%
Not ready to commit to 10%? That’s completely understandable. While 10% is often recommended in personal finance, everyone’s financial situation is unique. Start small by raising your contribution rate by just 1% this year. This slight increase will gradually build your savings without requiring drastic lifestyle changes. You can continue this pattern annually until you hit your desired savings target.
The key is to start saving as early as possible and maintain consistency. If you’re uncertain about how much to save, consider consulting a financial advisor who can help tailor a savings plan that works for you.
