Dave Ramsey’s Baby Step Four – Invest 15% of Your Income for Retirement (2024)

FAQs

Dave Ramsey’s Baby Step Four – Invest 15% of Your Income for Retirement? ›

When it comes to saving for retirement, money expert Dave Ramsey knows exactly how much you should be setting aside. Ramsey's recommendation, which he shared on his website Ramsey Solutions, is to invest 15% of your gross income into your 401(k) and IRA every month.

15% Leaves Room in Your Budget for Other Financial Goals

We tell folks to invest only 15% for retirement because you'll need money for some other important financial goals—like saving for your kids' college funds and paying off your house early.

If you start saving in your 20s, contributing 10% to 15% of your paycheck (including any savings match from your employer), you'll likely meet your retirement savings goal. With every decade you delay, however, you'll need to save a larger percentage of your paycheck.

Baby Step 4: Invest 15% of Your Household Income into Roth IRAs and Pre-Tax Retirement Funds.

Dave Ramsey shared some steps to successfully plan for retirement on his website. Here are his top tips: Invest 15% of your gross — before tax — income in tax-advantaged retirement accounts like a Roth IRA and 401(k). Decide when to take Social Security.

Retiring with $500,000 could sustain you for about 30 years if you follow the 4% withdrawal rule, which allows you to use approximately $20,000 per year. However, retiring at a younger age will likely reduce the amount you receive from Social Security benefits.

"If you don't have at least $5 million or $10 million, don't retire early," Suze asserted. Orman's assertion that individuals need "at least $5 million to retire early" stirred a mix of reactions, with some viewing it as excessively cautious while others validate her perspective.

Yes, you can.

Let's say, for example, you have £300k in a pension after taking your tax-free cash, you have no outstanding debts or mortgage to pay off, and you're entitled to the full state pension at age 67 (or 68 from 2044). For this example, let's say you take £1,500 from your pension per month.

Millionaires typically balance both paying off debt and investing, but with a strategic approach. Their decision often depends on the interest rate of the debt versus the expected return on investments.

What is the 50 30 20 rule? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

For a successful retirement, you should aim to save at least 15% of your income annually over the course of your career. Saving steadily and increasing your contributions periodically should help you hit that target over time.

Still haven't met your 15% investment goal? The post on Ramsey Solutions recommends going back to your traditional 401(k), 403(b) or TSP workplace retirement plan. Keep bumping your contribution up until you hit 15%. While you're there, make sure you have your account set up for automatic withdrawals.

To be considered wealthy at age 65 or older, you need a household net worth of $3.2 million, according to finance expert Geoffrey Schmidt, CPA, who used data from the 2019 Survey of Consumer Finances (SCF) to determine the household net worth needed at age 65 or older to determine the various percentiles of wealth in ...

For a successful retirement, you should aim to save at least 15% of your income annually over the course of your career. Saving steadily and increasing your contributions periodically should help you hit that target over time.

It's ridiculous." Ramsey recommended an 8% withdrawal rate instead, provided that retirees could earn a 12% annual return from "good mutual funds," aligning with the historical average annual return of the S&P 500. He argued that setting aside 4% for annual inflation made this approach feasible.

Key takeaways

Some even match contributions you make yourself. Aim to save at least 15% of your pretax income each year for retirement (including employer contributions). This can be in a 401(k) or another retirement account. Contributing early can help you get the most out of your 401(K).

A $1.5 million portfolio consisting entirely of bonds meant to keep pace with inflation can reasonably be expected to last 25 years. While you'll need to progressively take out more from your portfolio to have the same buying power, your portfolio should keep up with or even beat the inflation rate.