I originally had a goal of maxing out my 401k this year but have since changed my goal and lowered my contribution rate. Since my ultimate goal is to retire by 40 I need as much cash available to invest in taxable accounts as possible. I was contributing 10% to my 401k which was going to have me on track to contribute around $11.7k this year. I backed my contribution percentage down by two points to 8% and I am thinking of backing it down further to 6%. Changing my percentage for the rest of this year is only going to put an extra $700 or so in my pocket before taxes; however, that's an extra $700 I can have full access to whenever I do hit financial independence.
My employer currently matches 100% of the first 4% and then 50% of the next 2%. So if I contribute 6% they match with 5%. They also contribute to my 401k a 4% profit sharing around February of each year. Assuming the match and the profit sharing continue in the future I'll be saving 8% (my contribution) + 5% (employer match) + 4% (employer profit sharing) = 17%. That is still well above average for most employees and I think it was time for me to back my contribution down so I can have full access to more cash for DGI purposes. For this month at least I'm going to leave my contribution rate at 8% but I'm still heavily contemplating backing it down to 6%.
Based on my approximate earnings for this year I'll outline the difference between my 401k savings rates including the employer contributions as well as mine. All calculations are including the 5% employer match and 4% profit sharing. So a 10% contribution is my contribution only but the dollar amount includes the match and profit sharing of 9%.
10% Contribution - $21,467.44
8% Contribution - $19,207.71
6% Contribution - $16,947.98
The values are calculated assuming that I had that contribution rate for the entire year. After tax that will be an extra $1,694.80 for the 8% contribution and $3,389.60 for the 6% contribution that I can invest in my FI portfolio.
This is subject to change as raises and tax changes occur but for now that's where I'm sitting at. I feel that this will allow me to still reap the advantages of the employer match to get full value and saving for my goal of FI by 40. The main reason I'm still investing in my 401k is because I can't justify passing up free money and there's still 12 years until I hit 40 and lots of things can change between now and then. If I do hit my FI goal then there's ways to get around the money not being accessible and depending on whether the money is needed at all that could be a nice boost when it is available come normal retirement age or seed money for starting my future children off on the right foot financially.