While reaching your 401(k) annual deferral limit each year is ideal, contributing something is always better than nothing to ensure you are taking advantage of compounded interest and employer matching, if offered.
Let’s say that Peter works full-time and earns $30,000 per year. He’s currently 22 and aims to retire in 40 years at age 62. If Peter never receives a raise for the next 40 years, he will earn $1,200,000, before taxes, over the course of his career.
Peter contributes 1% of his annual income or $25 per month to his 401(k). With compound interest, where interest is reinvested over time, Peter will have accumulated $60,264. Please note that this amount assumes a 7% average annual rate of return. By making these deferrals into his 401(k), Peter receives the equivalent of 5% of his estimated lifetime earnings with a 1% contribution.
If you are unable to start contributing now you can set a reminder to check in with yourself every few months to reassess your financial situation. You can change your contribution rate at any time. In the meantime, see this article to learn more about the Saver’s Credit which may provide monetary incentives to help you save more for retirement.