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Why Should I Invest 15% of My Income for Retirement?

Nowadays, everyone seems to be an expert on investing. How much to invest, where to put your money, and when to get out before the value drops. So, who do you believe? What are the right answers? Why does this stuff seem so difficult?

We get it—it's confusing. The financial industry makes investing way more complicated than it has to be. There is a lot of bad advice out there when it comes to your financial future, and many people get overwhelmed when they’re finally ready to start investing. But there’s an easy approach you can use, and it’s a good rule of thumb.

Here it is: Every month, invest 15% of your gross income into tax-favored (aka you won’t pay as much in taxes as you would on traditional investment income) retirement accounts.

That’s it. We know it’s not trendy. It won’t make headlines or get you on the cover of a magazine. But it will get you where you want to go—to your retirement dream.

So why invest 15%? Good question. Let’s talk through the answer.

How Much You Invest Makes a Huge Difference

The U.S. Census Bureau says the median household income is around $69,000.1 Fifteen percent of that would be $10,350 a year, or $862.50 a month. Over 30 years, that could grow to over $1.9 million, assuming a 10–12% return. Sounds awesome, right? Who doesn’t want to be a millionaire?

money bag

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But what if you only invested 10% of that gross income? That would be $6,900 a year, or roughly $575 a month. Invested over 30 years at the same rate of return, that percentage could get you to about $1.3 million. You’ve lost out on $600,000 you could be using to fund your retirement dream.

Just as an example, what about if you dropped that 15% down to 5.5%—the average personal savings rate in the U.S., including retirement savings and emergency funds? At that percentage, you’re investing $3,795 a year, or around $315 a month. Over 30 years, assuming that same rate of return, you could be looking at about $715,000.

We know that’s a lot of numbers. If you’re a little more visual, here’s a breakdown for you:

30-Year Investment Results (Household Income of $69,000)

% Invested

Monthly Contribution

% Interest Earned Monthly

30-Year Total

15

$862.50

11

$2.4 million

10

$575

11

$1.6 million

5.5

$315

11

$883,423

 

Bottom line: Investing 15%, consistently, can pay off in a big way. Like, a million-dollar way, literally. That’s why 15% is the bar for how much to save and you shouldn’t settle for anything less.

Investing 15%, consistently, can pay off in a big way. Like, a million-dollar way, literally. That’s why 15% is the bar for how much to save and you shouldn’t settle for anything less.

Social Security Won’t Replace Your Income

Many people say that they’re still counting on Social Security to pay for expenses during retirement. That’s a bad financial plan. In 2020, the average Social Security benefit for retired workers was $1,514 a month.2 That’s only $18,168 a year. To give you some perspective, the federal poverty level for a family of two (that’s you and your spouse) is $17,420.3 Is that a wake-up call? We hope so.

Add to that a very legitimate question: Will Social Security even be around when you retire? The truth is, it's hard to say. Nobody knows. Conventional wisdom says the program will stay in place, but the money available to give out to retirees could shrink. If that’s true, then you definitely don’t want to depend on it for your retirement income.

You’ve Got Some Big Expenses Coming in Retirement

You may be thinking: My monthly expenses will be much lower in retirement. I won’t have to worry about a mortgage because I plan to pay it off before I retire. My kids will (hopefully!) have graduated by then, so I won’t be paying for college. My gas costs will go down because I won’t be driving to work every day . . .

Yes and no. Some costs may disappear or drop, but you’ll still have to pay property taxes and insurance and utilities and all those other monthly expenses. Plus, you’ll have one major expense in retirement: health care. And that’s a whopper of a bill.

Fidelity estimates that a 65-year-old couple will need nearly $300,000 for health care costs in retirement.4 Now that doesn’t include any long-term care costs, which can run an average of around $90,000 a year in a nursing home, or $51,600 a year for assisted living.5 Even if you’re healthy now, people turning 65 today have a 52% chance of developing a severe disability that needs some kind of long-term care in their remaining years.6

How Do I Invest 15% for Retirement?

The first place to start investing is through your workplace, especially if it offers a company match. If your employer offers a Roth 401(k) or Roth 403(b), then you can invest the entire 15% of your income there and you’re done. With a Roth option, you contribute after-tax dollars. That means your money grows tax-free, plus you don’t pay taxes on that money when you take it out at retirement (although the match is taxed). Talk about making investing super easy!

If your employer matches your contributions to your 401(k), 403(b) or Thrift Savings Plan (TSP; a plan for federal employees), you can reach your 15% goal by following these three steps:

  1. Invest up to the match in your 401(k), 403(b) or TSP.
     
  2. Fully fund a Roth IRA. (If you’re married, fund one for your spouse too.)
     
  3. If you still haven’t reached your 15% goal and have good mutual fund options available, keep bumping up your contribution to your 401(k), 403(b) or TSP until you do.

For example, if your company will match 3% of your 401(k) contributions, invest 3% in that account and then put the remaining 12% in a Roth IRA. If that remaining 12% would put you over the annual contribution limit for a Roth IRA ($6,000 if you’re under age 50, $7,000 if you’re 50 or older), max out the Roth IRA and then go back to your workplace 401(k) to finish out investing 15%.7

Here are two key takeaways: First, you need to invest 15% of your gross salary, not your take-home pay. Second, do not count the company match as part of your 15%. Consider that extra icing on the cake!

Supercharge Your Investing

Whether you invest through your workplace plan or through an IRA, you need to set up your account for automatic withdrawal—preferably with a percentage, not a flat amount. Your money will go straight from your paycheck to your retirement account. You won’t even see that money. That way, you won’t be tempted to skip investing to spend that money on something else.

Automatically withdrawing a percentage of your income from your paycheck also increases how much you’re putting away over time. For example, if your annual income is $59,000, you’d be putting away $8,850 a year. Let’s say your salary increases about 3% a year for 10 years. At the end of that decade, you’d be making just over $79,000 a year and investing a little over $11,800 annually. See how your contributions increase? That’s a really, really good thing!

So, what does that get you in the long run? If you keep investing 15% of your income no matter how much you make, you could reach the $2.1 million mark in 30 years, assuming a 10–12% return. If you increase your lifestyle instead of investing the raises you get, you could have $1.68 million in 30 years. Now, we know, that’s still a lot of money. But you could miss out on over $420,000 for your dream retirement! That amount would definitely put a dent in any medical expenses you might encounter in your golden years.

It’s Time to Take Action

What happens next is up to you. Your financial future is in your hands, not someone else’s. You start on the path to your dream retirement the moment you take that first step. Knowing this information won’t change your future if you don’t act on it.

Investing 15% might feel like a big step. But whether we like it or not, the clock is ticking—and now is the time to act. If you want to go from floating with no real plan to on track and investing in your family’s future, you have to create a plan and stick to it.

If you still have questions about investing, talk to your financial advisor. If you don’t have one, check out a SmartVestor Pro. These men and women want you to succeed with money as much as you do!

Have investing questions? Just enter your information, and you’ll get a list of SmartVestor Pros in your area that can help you with your retirement goals.

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Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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