5 Important Retirement Numbers, According to Rachel Cruze

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Finance expert Rachel Cruze knows that the words “retirement investing” can send some people “into a complete spiral.” Or so she said in a recent video that attempts to break down how to invest for retirement in a way that won’t stress you out.

She shared five “numbers” that will help you invest and plan for retirement.

The First Number: 15%

Fifteen percent is the amount of your take-home pay that you should be investing in retirement funds. If that’s more than you can put away now, she urged you to make it a goal. But it’s also a goal that you can really only achieve after you complete several other key steps, including:

• Getting completely debt-free (other than a mortgage)
• Creating a six-month emergency fund

What she wants you to avoid is “trying to do 18 things at once with [your] money” because it typically means you won’t make much progress.

“So … press pause on retirement investing, pay off all of your debt, which will take on average around two years, then get an emergency fund, a fully funded emergency fund at three to six months of expenses, then go press play on retirement,” she said.

The Second Number: 401(k) or 403(b)

The next number you need to know, Cruze said, is the 401(k) plan (or, if you work for a nonprofit or the government, a 403(b) plan). These are the accounts your employer offers where you can invest in mutual funds, and most employers will match the percentage you put in (up to a select maximum). 

Cruze recommended that you contribute as much as your company will match, and then the difference between that and the goal of 15%, you go and fund a Roth IRA with.

“And then if you have any money left after you’ve maxed out your Roth IRA, then you can move that money back over to your 401(k) and finish putting money into there,” she said. 

She reminded her viewers that “match beats Roth beats traditional.” 

The Third Number: 7

The third number Cruze wants you to know about is seven — as in seven years. She said she uses a trick to do “fast math” when looking at your retirement investments.

If you have money in an investment and you don’t put another penny in, every seven years your money should double. So you can do some easy projections for how much you’ll have by age 65.

The Fourth Number: 10%

The fourth number is 10% — as in rate of return. She said that people “love and hate” the rates of return that she and other Ramsey members talk about because some people think it’s low and others think it’s too high.

On average, however, she said that you can expect anywhere from 10% to 12% return on your investments. 

“The 10% rate of return is a pretty standard way to calculate what you’re going to have and what you’re going to see when it comes to your interest over the long haul when you’re looking at your retirement,” she said.

The Fifth Number: 8%

The fifth and final number to remember is an 8% withdrawal rate, Cruze said. She said that you should plan to take out about 8% of your funds every year in retirement — a number that is twice as high as the conventional industry wisdom that suggests around 4% annual withdrawals. The goal, though, is to invest so much that you can withdraw 8% comfortably each year. This also accounts for inflation.

Of course, you do want to talk to your investment professional, she added, so that you’re making informed decisions for a solid retirement.

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