Dave Ramsey recommends investing 15% of your gross household income into retirement accounts, specifically during Baby Step 4, after you are 100% debt-free (except the mortgage) and have a fully funded 3–6 month emergency fund. This 15% is your own contribution and should not include any company match.
We recommend saving 15% of your gross income for retirement because research has shown again and again that your savings rate—how much you save—will determine whether or not you'll have enough money for retirement more than anything else.
“The 401(k) itself is not an investment,” Ramsey said. “It is how the investment is treated under section 401, subsection K of the IRS code. Meaning that you're allowed to have money taken out of your check and put into an investment.
Ramsey states that beating the market is easy with his asset allocation. You get 12% per year, take out 8%, and leave 4% to keep compounding.
For personal finance guru Dave Ramsey, one retirement account option stands apart from the rest. Ramsey recommended contributing to a company-administered 401(k), but not necessarily the traditional version. “We always recommend the Roth option if your plan offers one,” said Ramsey.
Since many Americans carry debt, Ramsey insists Americans pause 401(k) contributions for eighteen months (or, in some far more complex cases, longer) while aggressively paying off that debt.
And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.
Recommended 401(k) balances often use salary multiples, like having 1x your salary by 30, 3x by 40, 6x by 50, and 10x by retirement (age 67), though averages vary significantly by age group, with younger savers having less and older savers (55-64) often holding over $250k on average, but still needing more for a comfortable retirement. Key benchmarks suggest aiming for 10-15% total savings (including employer match) and increasing contributions as you earn more, using catch-up contributions after 50.
Yes, retiring comfortably with $500,000 is achievable. This amount can support an annual withdrawal of up to $34,000, covering a 25-year period from age 60 to 85. If your lifestyle can be maintained at $30,000 per year or about $2,500 per month, then $500,000 should be sufficient for a secure retirement.
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.
The Ramsey 25% rule is a personal finance guideline from Dave Ramsey, stating that your total monthly housing costs (mortgage principal, interest, taxes, insurance, HOA, PMI) should not exceed 25% of your monthly take-home pay, preventing you from becoming "house poor" and allowing for savings, investing, and financial freedom. It's a guideline for building a strong financial foundation, not a strict rule, though some find it difficult in high-cost areas.
Summary. If you plan on spending $60,000 or less annually in retirement, $800,000 will be more than enough. You can retire early, at age 50, with $800,000 if you budget and plan correctly.
Yes, you can live off the interest/returns from $500,000, but it depends heavily on your lifestyle and expenses, with the common 4% rule suggesting about $20,000 annually, which may require a frugal lifestyle, relocation, or significant Social Security income to supplement. With smart investing (e.g., balanced stock/bond mix) and minimal spending, it's feasible for many, but living in a high-cost area or with high expenses would make it difficult.
Dave Ramsey cautions on Social Security dependence
But Ramsey said, "These 35% of folks are going to learn the hard way that what they don't know can and definitely will hurt them when they retire." Ramsey insists that relying too heavily on Social Security for retirement income is a dangerous move.
The $1,000 a month rule is a retirement guideline suggesting you need about $240,000 saved for every $1,000 per month in desired income, based on a 5% annual withdrawal rate (5% of $240k is $12k/year, or $1k/month). It's a simple way to set savings goals, but it doesn't account for inflation, taxes, or other income like Social Security, so it's best used as a starting point, not a complete plan.
Higher contribution limits: 401(k) plans have higher contribution limits than IRAs, making them a good choice if you're looking to put away a lot of savings for retirement. No income limits: You can contribute to a 401(k) no matter how much you make.