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.
There’s a good reason you should invest 15% of your income. The math breaks down as follows. According to Ramsey, the median U.S. household income is about $70,800. Investing 15% of this amount would be $10,620 a year, or $885 a month. Over 30 years, and assuming an 11% return, this grows to $2.48 million in your nest egg. By consistently investing 15% each month, you put yourself on track to retiring as a millionaire.
Now that you know how much you need to save, how can you reach this 15% goal? Follow these three steps to properly invest 15% of your gross income for retirement.
Pro Tip: Don’t Invest Until You Do These Two Things
Before you start your investing journey, Ramsey recommends paying off all outstanding debt and setting aside three to six months’ worth of savings into an emergency fund — these are steps two and three of the 7 Baby Steps, respectively.
Once you take care of both these items, you can begin to invest.
Does your employer offer a workplace retirement plan, like a 401(k), 403(b) or Thrift Savings Plan (TSP), with a match included? If you answered yes, take advantage of this plan to start investing.
According to the post on Ramsey Solutions, those who like the investment options offered by their employer can invest the entire 15% of their income there. This is especially true of Roth 401(k) and Roth 403(b) offerings.
What if you only have traditional 401(k), 403(b) or TSP options? If you find this is applicable to you, take this next step.
2. Fully Fund a Roth IRA
After you invest up to the employer match in your company retirement plan, it is recommended that you fully fund a Roth IRA. Remember there’s an annual contribution limit for the amount you can invest in it each year. In 2023, the cap is $6,500 a year if you’re under age 50 and $7,500 a year if you’re age 50 or older.
Why would you want to fully fund a Roth IRA? The post on Ramsey Solutions reads that a Roth IRA allows money invested in it to grow tax-free, since you’re contributing after-tax dollars to this account.
3. Keep Bumping Up Your Workplace Contribution
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. Doing this means your money goes straight from your paycheck to your retirement account and keeps you from spending the money meant for investing on things you don’t need. If you receive a raise or bonus at work, it’s recommended that you automatically withdraw a percentage of your income from your paycheck to increase your overall retirement savings.
We recommend you save 15% of your gross income for retirement, which means you should be investing $688 each month into your 401(k) and IRA. If you did that for 25 years, you could end up cracking the $1 million mark at age 65. That's right—you would be a millionaire!
Invest up to the match in your 401(k), 403(b) or TSP. The first place to start investing is through your workplace retirement plan, especially if they offer a company match. ...
Fully fund a Roth IRA. ...
Go back to your workplace retirement plan until you hit 15%.
But how much is enough? Our guideline: Aim to save at least 15% of your pre-tax income1 each year, which includes any employer match. That's assuming you save for retirement from age 25 to age 67.
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.
The rule says to achieve the goal of earning Rs 1 crore, an investor should invest Rs 15,000 monthly through SIP for 15 years, considering a 15% annual return from an equity fund. Consistent adherence to this strategy can lead to significant wealth accumulation.
Most retirement experts recommend you contribute 10% to 15% of your income toward your 401(k) each year. The most you can contribute in 2023 is $22,500 or $30,000 if you are 50 or older (that's an extra $7,500). That number has only been increased by $500 for the 2024 tax year.
You should consider saving 10 - 15% of your income for retirement. Sound daunting? Don't worry: your employer match, if you have one, counts. If you save 5% of your income and your boss matches another 5%, you've accomplished a 10% savings rate.
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.
Plain and simple, here's the Ramsey Solutions investing philosophy: Get out of debt and save up a fully funded emergency fund first. Invest 15% of your income in tax-advantaged retirement accounts. Invest in good growth stock mutual funds.
So, if you're aiming for $100,000 a year in retirement and also receiving Social Security checks, you'd need to have this amount in your portfolio: age 62: $2.1 million. age 67: $1.9 million. age 70: $1.8 million.
However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.
Using our portfolio of $400,000 and the 4% withdrawal rate, you could withdraw $16,000 annually from your retirement accounts and expect your money to last for at least 30 years. If, say, your Social Security checks are $2,000 monthly, you'd have a combined annual income in retirement of $40,000.
For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72/10) = 7.2) to grow to $2. In reality, a 10% investment will take 7.3 years to double (1.107.3 = 2). The Rule of 72 is reasonably accurate for low rates of return.
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
If you have a Roth 401k, doing the full 15% in there is fine if you have good investment options. If it's not Roth or if you can get better investment options elsewhere, put in your 6% and open up a Roth IRA for your other 9%.
As a general rule, it's certainly wise to sock away a good 15% to 20% of your income for retirement. And if you can push yourself to save beyond that threshold without compromising your near-term quality of life, even better. But striking the right balance can be tough.
Key Insights. Most investors should save at least 15% of their income for retirement. Your age, income, and current savings can help gauge how much you should save going forward. If you're off target, start recalibrating as soon as possible.
Address: Apt. 935 264 Abshire Canyon, South Nerissachester, NM 01800
Phone: +9752624861224
Job: Forward Technology Assistant
Hobby: Listening to music, Shopping, Vacation, Baton twirling, Flower arranging, Blacksmithing, Do it yourself
Introduction: My name is Nathanial Hackett, I am a lovely, curious, smiling, lively, thoughtful, courageous, lively person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
