Ninja Hack Your 401(k) Contributions

I know I’ve said it before, but saving for your retirement is kind of important if you ever want to stop working. As much as people say they want to do better at something, it’s often in our nature to do the things of least resistance. Think about how often you say you’re going to go to the gym, but end up watching TV. How about that laundry that sits in the dryer for a week?

We say we want to do something better, but laziness or forgetfulness gets the better of us. In the moment, laziness can feel good – knowing that you aren’t doing something that requires more exertion. This can lead to doing things that are easier right now, at the cost of our long-term well-being.

For many of us, financially, that may take the form of delaying contributions to retirement or other forms of saving to experience that delightful instant gratification. It’s nice to have larger paychecks now. Future Dave will take care of money – Present Dave doesn’t need to worry about it. I’ll save money after I buy this new car!

Instant Gratification is Fleeting

The problem, of course, with instant gratification is that it’s frequently short-lived, requiring more and more instant gratification to continue that good feeling. This can lead to a lot of over-spending, purchasing of frivolous things, and the development of just generally bad spending (and saving) habits.

Don’t get me wrong – I’m not saying that you need to cut out every sort of instantly gratifying purchase. But there are ways to reach a healthy balance between enjoying the Now and planning for the future.

Contribution Goals

Many people who are employed full time (in the US) have a 401(k) or 403(b), or other similar retirement account. Even if you don’t have an employer-sponsored plan you can still contribute to a Roth or Traditional IRA; you can contribute to these if you do have an employer-sponsored plan, too.

In 2017, contribution limits for a 401(k) were $18,000. This is not a small chunk of change by any definition of the word, and getting to the point where you’re maxing out your 401(k) is an ambitious goal, especially for younger workers who haven’t had significant time in the work-place to grow their income.

Let’s say for example you’re starting off making $50,000 a year out of college at 22. Maxing out your 401(k) is a daunting task; one that would require a contribution of about 36% of your pay in order to make it work! Seeing over a third of your paycheck disappear into an account you can’t really touch before you retire isn’t how most people want to see their money distributed. As a result, lots of new grads either put in just the minimum to hit their company match (if any), or, worse, nothing at all. The longer you delay putting money into a 401(k) or other retirement account, the less time it has to grow into the nest egg you’ll need in order to retire.

Ninja 401(k) Contribution Hack

So how do you get from a 0% or single digit contribution percentage, up to enough to hit the max? Thankfully you can “ninja hack” your contributions to a point that you are nearing or hitting the max contribution limit, while not severely impacting your current lifestyle in a negative way.

Each year that you’re working, when you’re electing your other benefits (like health insurance) for the following year, make a point to increase your 401(k) contribution percentage by 4% if you’re under a 12% contribution rate. If you started contributing at 2%, bump it to 6%. If you started at 6%, bump it to 10%. If you’re above 12%, then you can keep going at this rate or slow down the squeeze a little bit. Honestly, any sort of increase helps. If you’re more of a number person, here’s a good example of how significant of an impact it can have in the long-term without severely impacting the here and now.

For our hypothetical person earning $50,000 a year, a typical paycheck may be something like the following, assuming a bi-monthly pay cycle and a traditional 401(k).

  • Gross Pay: $2083.33
  • Insurance: $125.00
  • Federal Withholding: $245.80
  • Social Security: $129.15
  • Medicare: $30.20
  • State Withholding: $107.36
  • Net: $1445.50

Let’s round and say $1450. YMMV of course depending on many other variables. If we add in a 4% contribution, paychecks will now look something like this:

  • Gross Pay: $2083.33
  • Insurance: $125.00
  • Federal Withholding: $224.97
  • Social Security: $129.15
  • Medicare: $30.20
  • State Withholding: $102.36
  • 401(k) Contribution: $83.32
  • Net: $1388.00

This is a difference of about $60 each pay period. If we also assume an employer match of 100% (dollar-for-dollar match) up to 4% of pay, even this small contribution can grow significantly over time. I think most people who are earning $50,000 a year as in the example would agree that they could somehow squeeze out $120 a month from their budget for a short term (until their income grows to cover that, at least) through things like cutting cable, avoiding purchasing a car for a little while, or just going out a bit less.

I use DinkyTown for almost all of my calculators; if you haven’t tinkered around on there, it’s a great resource to use.

You’ll have a million dollars in there, contributing around $85 twice a month if your employer matches it. This assumes a 7% annual return, which is strong but not overly optimistic. And the kicker here? That’s not including a continued habit of increasing your contribution percentage, or any raises. This is just staying at 4%, and a $50k/year job. Chances are you’ll receive at least some cost-of-living wage increases along with potentially other things like bonuses, performance raises, or a job change that bumps up your pay even more significantly.

Handling More Income

You can tackle income increases – namely raises – with the same “ninjaness”.¬†Doing so has a great benefit. In addition to shielding yourself involuntarily from lifestyle inflation (after all, you don’t have all of the extra money coming in that you’d get from a raise), you’ll be saving progressively more toward your retirement.

When you receive a raise – let’s say for our example 6% – increase your 401(k) contributions by another 1%. This lets you keep at least some – likely most – of your raise for other things now – either other investing, or just enjoying the money now while you’ve got it – while also keeping your future in mind.

If our hypothetical earner got this raise, bumped up the standard 4% (since he’s contributing less than 10% right now) plus the extra 1% for his raise he received, he’d be earning $3000 more each year and contributing 9% to his 401(k). Now, his paychecks might look like this:

  • Gross Pay: $2208
  • Insurance: $125.00
  • Federal Withholding: $227.37
  • Social Security: $136.90
  • Medicare: $32.02
  • State Withholding: $102.93
  • 401(k) Contribution: $198.72
  • Net: $1385.06

His raise basically went entirely into increasing his 401(k) contributions; his take-home pay is essentially flat. This helps battle lifestyle inflation and has amazing impacts on your 401(k) growth. He’s still only contributing less than $5k annually – a long way to go to the $18k max – but over time his spending can hopefully flex down (through saving more aggressively) and his income should hopefully go up (because he’s obviously a rock star at work). By keeping his income flat one year, look at how his nest egg grows even more dramatically.

Combining a raise with an increase in 401(k) contributions has a very dramatic impact on the potential value of your nest egg.

This again assumes no wage increases in the future: $53k a year forever, 9% forever. As you get cost of living increases and performance raises, it’s possible to grow your nest egg a lot.

Eventually through income growth and stretching your budget, you’ll hopefully get yourself to a point where you’re consistently maxing out your 401(k) without having put too much strain on your current standard of living. You’ll be able to enjoy watching your money grow by a significant amount each year, and can start shifting this plan into other investments (like index funds, real estate, peer-to-peer lending) or IRA and see that grow as well. When you’re maxing out your 401(k), every additional raise you earn now can be invested in something else, either taxable or tax-advantaged.

Lifestyle inflation is a psychological phenomenon¬†that is fueled by instant gratification. If you employ a few simple savings hacks, however, you can still enjoy your life now and make sure you’re planning for your future as well.


Do you max out your 401(k) or other retirement plan? Did you have any tricks to ‘force’ yourself to save more?

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