How to Retire Successfully

Imagine the perfect day: golden sunshine, light breeze. Today’s the day you finally go sailing in that boat you’ve been building. The weather’s ideal, so you cast off.

But just when you clear the harbor, you realize there’s a problem.

You’re sinking.

You look belowdecks to discover there’s a gaping hole in the bottom of the boat you built. Dang, that sucks.

And you know what else? That’s exactly what it feels like to retire unprepared.

What Does It Mean to Retire Successfully?

Let’s be real. A successful retirement probably looks different for you than it does for your neighbor.

For example, maybe you want to live on a yacht or spend every day on a golf course. Or maybe you think golf is a special kind of torture for rich people. It doesn’t really matter.

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No matter what retirement looks like for you, most people want the same things: to live with dignity and to leave a legacy for their loved ones.

How Do You Retire Successfully?

People who retire successfully have other things in common too:

• They live off the growth of their investments without touching the principal.
• They have zero debt.
• They give generously.

When you look at success through that lens, you’ll begin to see that retirement isn’t a government-mandated age. Instead, it’s a number—as in, how much money you’ve saved for retirement.

There’s a detail a lot of folks miss, though: That successful retirement doesn’t happen by accident.

You have to give every dollar a job so you can be consistent with your investments. You can’t continue to carry consumer debt as well as invest successfully for retirement. If you try to do both at the same time, success will always feel out of reach for you.

Why Do So Many People Feel Unprepared for Retirement?

Most people feel unprepared for retirement because they haven’t invested enough. In the rinse-and-repeat of the daily grind, they push saving for retirement to the back burner. As a result, they end up not having enough to retire with confidence.

If only someone had built a system that makes all this stuff easier to understand! Good news: We did. We call them the 7 Baby Steps. If you’re starting to look at ways you can retire successfully, you should be on Baby Step 3 and getting ready to move to Baby Step 4.

As you consider retirement, watch out for these obstacles:

• Lifestyle creep: Look at every raise as an opportunity to invest more. Lifestyle creep is when your spending increases right along with your income, and it’ll steal your retirement future. Forget about keeping up the Joneses! Normal is broke. Be weird!
• Inconsistent investing: If you invest when the market feels safe but pull back when things feel dicey, you’re doing it wrong. The Ramsey way to build wealth is to stay invested for the long haul. (It takes the typical Baby Steps Millionaire about 20 years to reach millionaire status.) Slow and steady wins the race very time.
• Debt: Don’t underestimate how crushing debt is over time. Carrying consumer debt (credit cards, car loans and student loans) could cost you hundreds of thousands of dollars in lost investment growth.
• Unrealistic expectations: If your idea of a successful retirement requires super cars and caviar every night, maybe it’s time for a rethink. And if you’re counting on Social Security to replace your income in retirement, think of it as a supplement instead.
• Overcomplicated investing: Most people who build wealth for retirement keep it simple. They use their 401(k)s and IRAs to invest in good growth stock mutual funds with a long track record of success to build wealth.

Becoming a millionaire isn’t rocket science, but it does take consistency and discipline to stick with your plan when everyone else is freaking out. Complicated investments will only impress your broke uncle.

How Much Should You Invest to Retire Successfully?

Once you hit Baby Step 4, we recommend investing 15% of your gross income for retirement. Why 15%? Because for most people, it’s enough to build serious wealth over time while still making progress on other goals (like paying off the house early or helping your kids with college).

Here’s where we recommend investing your 15%:

1. Invest in your workplace retirement plan—usually a 401(k) or a Roth 401(k)—up to the employer match.
2. Open a Roth IRA (if you’re eligible) and max it out.
3. If you still haven’t hit 15%, go back to your workplace plan and invest the rest.

Let’s look at an example. If you earn $80,000 a year and want to save 15% for retirement, that’s $12,000 a year ($1,000 a month). That may sound like a lot, but remember: In Baby Step 4, you’re debt-free except for your mortgage. If you used the debt snowball method to get here, setting aside 15% of your income for retirement will probably feel like a raise.

But let’s go even further with that example so you can see how much consistency matters.

Most people plan to retire at age 65. Over time, if you save a minimum of $1,000 a month with an 11% average annual rate of return (the historical average of the S&P 500), here’s what that can turn into over time:¹

If you got started at age 30 and invested $1,000 a month for 35 years, you’d likely have almost $5 million at retirement!

And even better, your paycheck will probably increase throughout your career. If it does, you’ll be able to invest more than that initial $1,000 a month over your working life—so your retirement savings could be even larger.

What Investments Work Best for Retirement?

We recommend spreading your investing dollars evenly across four types of good growth stock mutual funds:

• Growth
• Growth and income
• Aggressive growth
• International

That mix gives you both diversification and long-term growth.

Exciting, right?

Listen, nobody's going to make an action movie about a regular person who steadily invests in mutual funds through their 401(k) and becomes a millionaire. But that's exactly how you retire successfully—by staying focused while everyone else chases the latest trends.

Many of those trends turn into traps. Here are a few to avoid:

• Meme stocks: If a stock’s value is based on its going viral, run. Don’t base your retirement strategy on hype.
• Cryptocurrency: Sorry, but it’s too new and too volatile for retirement investing. And you should never invest in something you don’t understand.
• Day trading: You’ll never beat the market by jumping in and out of it. Don’t gamble with your future.
• Guaranteed returns: Any investment that promises huge returns and zero risk should trigger your scam alarm immediately.

Probably the biggest retirement investing mistake we see is when people make their investing decisions based on fear. If you sell when the market drops, you lock in losses you could recover from if you simply stay invested.

Patience. Discipline. God’s and Grandma’s ways of handling money. These old-fashioned values worked way back when, and they still work today.

How Do You Keep Retirement Planning Simple?

Retirement planning can be simple if you:

• Automate your investing. Make consistency easier, cut out second-guessing, and keep growing your investments even if you forget.
• Think long-term. The stock market will always go up and down, but your patience will be rewarded.
• Tune out the noise. Headlines are designed to trigger fear. Fear won’t help you build wealth.
• Review your investments once a year. Don’t obsess over it, but do pay attention to your retirement plan—and talk it over with a pro you can trust.
• Follow the Baby Steps. We built the 7 Baby Steps to give you a clear understanding of where you are and what to focus on next.

Nobody retires successfully by accident. Bottom line? if you get out of debt, invest consistently, and stick to a long-term plan that’s simple, you can retire successfully.