Dave Ramsey: 4 Easy Steps To Guide Your Retirement Planning
Written by
Andrea Norris
Edited by
Ashleigh Ray
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According to financial guru Dave Ramsey’s website, Ramsey Solutions, “Retirement planning isn’t an ‘old people’ thing. It’s a smart people thing [1].” And for those smart people, he recommends a straightforward approach to retirement saving that will allow you to live comfortably throughout your golden years.
Here’s a closer look at Ramsey’s four-step guide to help with your retirement planning, even if retirement is still decades away.
Set a Retirement Savings Goal
In an article posted to Ramsey Solutions, Ramsey advises planning for “a nest egg that’s large enough that you can live off the growth it creates each year without ever touching the principal amount.”
Say, for example, you have a nest egg of $1 million and invest it, earning about 10% annually in returns. That would amount to approximately $100,000 in investment growth each year in addition to your nest egg.
“The question is, can you live off of $100,000 in retirement each year?” read Ramsey Solutions.
If you don’t think you can, you might need to set your savings goal higher than $1 million. While the actual dollar amount will differ for everyone, and can change over time, it’s a good idea to get a rough estimate of how much you’ll need to retire.
There are a number of calculators online to help you determine that number, in addition to those that help you determine how much you should be saving in order to reach your goal amount.
Save 15% of Your Income
Ramsey also recommends setting aside 15% of your pre-tax income for retirement. And when it comes to investing that money, he has a few suggestions:
Contribute to an Employer-Based Retirement Plan If Eligible
If your employer offers a savings plan with matching contributions, you should aim to invest enough to get the full match.
For many people, this savings plan is a traditional or Roth 401(k). If you work for a tax-exempt organization, it’s the 403(b). Federal employees have the Thrift Savings Plan. If you’re self-employed and have no employees, consider opening a solo 401(k).
If you don’t qualify for these options, Ramsey recommends you contribute to a taxable investment account.
Open a Roth IRA
Once you’re investing up to the match in your employer-sponsored plan, start putting money into a Roth IRA to get closer to that 15% savings goal.
In 2024, you are allowed up to $7,000 in annual Roth IRA contributions if you’re under age 50. If you’re 50 or older, you can contribute $8,000 annually.
Boost Your 401(k)
If you’re making maximum contributions to your Roth IRA, but still aren’t saving 15% of your pre-tax income, increase your 401(k) or other employer-sponsored plan contributions.
The 2024 traditional 401(k) employee contribution limit is $23,000. If you’re 50 or older, you can also make catch-up contributions up to $7,500.
Ramsey advises evenly investing your money in your retirement accounts across the four types of growth stock mutual funds: “growth and income, growth, aggressive growth and international.”
Invest for the Long Term
Investing is a marathon, not a sprint. This is especially true when building wealth for your future.
While historically, the average rate of return annually for the stock market is 10% to 12%, that is only an average. Some years, your stocks may be way up, while others could see them tank way low.
The best way to get the most out of your money is to stay invested over long periods of time. This is what Ramsey calls the “buy-and-hold strategy.”
With buy-and-hold, you invest in stable portfolio options — like the growth stock mutual funds mentioned above — and hold them long term regardless of stock market fluctuations. There is no timing of the market, no buying when stock prices are low and no selling when they are high. Just patience and growth.
Work With a Financial Advisor
If you’re feeling out of your depth, an advisor can help you get a retirement plan in place and ensure you stay on track with your retirement goals. They can also guide you in all other areas of your personal finances, from spending strategies to tax and estate planning.
In Northwestern Mutual’s 2024 Planning & Progress Study, people with a financial advisor reported saving twice as much for retirement, planned on retiring earlier and felt more confident in their financial preparedness than those without an advisor.
A Final Note From Dave Ramsey
It’s important to note that Ramsey says you’re only ready to begin saving for retirement if you’ve paid off all debt — besides your mortgage — and have three to six months of expenses saved in an emergency fund. Once you’ve achieved this, you can follow these steps to start your savings off on the right foot.
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