I love following the markets.
The craziness. The companies. The historical returns. The risks. The investor behavior. The numbers. The psychology. All of it.
But the stuff that really matters when it comes to building wealth happens before you even get to thinking about how to invest.
Investing is important but saving has to come first. If you don’t have the ability to earn, save and retain money to invest it doesn’t matter if you’re the next Warren Buffett. You can’t build wealth without some savings.
The good news is there has never been a better time to be a saver-turned-investor. Technology makes it easy to automate your savings into any number of different investment accounts and platforms. Just turn on automatic contributions to your 401k, IRA, brokerage account, HSA, 529 or high yield savings account.
The money comes right out of your paycheck or checking account so you can get on with your life. You make one good decision now that sets you up for many more good decisions in the future.
I also think the ability to save in a tax-deferred account is a wonderful way to improve your investment behavior. Why?
There are guardrails in place. Sure, you can withdraw money from your retirement accounts but it’s not easy. There are rules, regulations, and penalties in place that make it harder to interrupt your compounding.
You give up some flexibility in the short-run but retirement assets are meant for the long-run.
In 2026, investors can save even more money in their tax-deferred retirement accounts.
According to the IRS, these are the new contribution limits for 2026:
- 401k/403b/457: $24,500 (up from $23,500)
- IRA: $7,500 (up from $7,000)
- SEP IRA: $72,000 (up from $70,000)
If you’re 50 or older you can contribute $32,500 to your 401k with a catch-up provision. If you’re 60-63 it’s $35,750 in your workplace retirement plan.
The government doesn’t always do a great job indexing its tax policies to inflation but retirement contribution limits have moved up nicely over the years:
IRA contribution limits have risen as well:
In the 2020s alone, the 401k contribution limit is up nearly 30% while IRA limits have increased by 25%. In the 21st century, the limits have gone up by 133% and 275%, respectively.
This is wonderful news for savers.
Let’s say you had the ability to max out your 401k contributions every year starting in 2000. By the end of this year that amounts to a little less than $440k in total savings or around $16,800 a year in annual savings on average.
If you put that money to work dutifully over the course of this century into the S&P 500 on a monthly basis, you’d be sitting on around $2.2 million by the end of October. In a global stock market allocation (MSCI ACWI), it would be more like $1.7 million.
That’s pretty good for 26 years of savings.
Of course, not everyone has the abililty to max out their retirement contribututions.
This is the share of workers who max out their 401k by age in Vanguard defind contribution retirement plans (via The WSJ):
It’s difficult for young people to max out their retirement savings for obvious reasons but the older age groups are approaching a 20% share that max out. My guess is that this number will continue to rise over the years since young investors are more highly educated about this stuff from an early age.
I didn’t max out my 401k until I was 34 years old. My initial contribution amount was small-ish when I was just starting out. Every year I increased the amount until I finally reached my goal. It took some time.
If you can’t max out your 401k contribution, save enough to get your company match at first and then increase your savings rate a little every year.
If you don’t have a workplace retirement plan, max out your IRA and save the rest in a taxable brokerage account.
If you’re 50 or older and behind on retirement savings, take advantage of the catch-up provisions.
The antidote to every market risk is saving more money.
You can’t invest if you don’t save.
How you behave will often determine your success or failure as an investor. The most important behavior when it comes to building wealth is saving money.
Further Reading:
The Automatic Investing Revolution
