Social Security often falls short in helping retirees cover all of their bills because those benefits will usually only replace about 40% of an average earner's pre-retirement wages. Most seniors need roughly twice that amount to cover their various expenses.

For this reason, workers are advised to save as aggressively as possible for retirement. And ideally, that means maxing out 401(k) contributions for the year.

Of course, doing so is no easy feat. That's because 401(k) plans currently max out at $19,500 for workers under the age of 50 and $26,000 for those 50 and older. For many people on an average salary, these limits aren't doable.

Person looking at tablet

Image source: Getty Images.

But still, it may surprise you to learn that only 12% of 401(k) participants contributed the maximum amount to their 401(k)s in 2020, reports Vanguard. And if you're eager to get closer to that max, it pays to make some changes that enable you to ramp up your savings.

How to boost your savings rate

What might maxing out a 401(k) do for you? Let's assume that you're 35 years old and want to retire at 65. Let's also assume that you currently have no money socked away for retirement.

If you're able to contribute $19,500 a year to your 401(k) for the next 15 years, and then $26,000 a year for the following 15 years, you'll wind up with $2 million if your investments in your plan generate an average annual 7% return. That 7% is a bit below the stock market's average, so it's a reasonable assumption over a 30-year window.

Now, let's see what happens if you only save $10,000 a year over that same time period. Assuming that same 7% return, you'll end up with about $944,000. To be clear, that's still a very nice amount of money. But it doesn't have the same ring as $2 million.

Of course, if you're only earning an average salary, you might struggle to max out your 401(k). But if you're interested in increasing your savings rate, you may want to consider some of these tactics:

  • Get a second job. The right side hustle could boost your income by several thousand dollars a month, enabling you to ramp up your contributions
  • Cut a large expense in your budget. This could mean downsizing your home or driving a much less expensive car
  • Take more modest vacations. Swapping those luxury resorts and overseas flights for local getaways could free up a lot of cash

You may not want to make any of these sacrifices, and the reality is, you may not have to. It's more than possible to retire comfortably without maxing out your 401(k) every year. But if you'd like to do better on the savings front, these options might get you there.

As a general rule, it's a good idea to sock away 15% to 20% of your earnings for retirement. And for some people, that means saving enough to max out a 401(k).

You may decide that you're content saving a smaller portion of your earnings. But either way, crunch some numbers to see what sort of impact maxing out could have on your retirement. You may decide that it's worth making the effort, even if just temporarily.