There’s a lot of bad advice out there when it comes to saving for retirement, and many people get overwhelmed by information when they’re finally ready to start investing.
But really, you just want to know what percent of your income you should save for retirement to be financially secure. And the answer is pretty simple.
Here it is: Invest 15% of your gross income into tax-favored retirement accounts—like your 401(k) and IRA—every month.
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’s helped thousands of Baby Steps Millionaires build wealth, and it’ll 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
Quick: What’s the most important factor when it comes to saving for retirement? Is it picking the funds with the highest returns or lowest fees? Nope. Is it having a huge salary? Wrong again.
Believe it or not, it’s your personal savings rate—how often you save your money instead of spending it—that makes a huge difference.1 And when you can commit to investing those saved dollars into solid long-term retirement plan, that’s when it all starts coming together.
According to The National Study of Millionaires, 75% of millionaires said that regular, consistent investing over many years was the reason for their success. And 8 out of 10 millionaires got there by investing in their company’s 401(k).
The big takeaway is this: No matter how much money you make, investing a portion of your income will put you on track for a secure retirement. But the original question remains, why is 15% the golden standard? Well, buckle up—we're heading to statsville to find out.
Why You Should Invest 15% of Your Income
The median household income in the United States is roughly $74,500.2 Fifteen percent of that would be $11,175 a year, or $931 a month. Over 30 years, that could grow to about $2.61 million in your nest egg, assuming an 11% return. Sounds awesome, right? Who doesn’t want to be a millionaire?
But what if you only invested 10%? Or just 4%—which is about the average personal savings rate in the U.S.?3 In the long run, skimping on retirement saving could cost you and your nest egg hundreds of thousands of dollars (or even millions).
30-Year Investment Results (Household Income of $74,500)
Annual Rate of Return (%)
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.
Social Security Won’t Replace Your Income
Many people say they’re counting on Social Security to pay for most of their expenses during retirement. That’s a bad financial plan. But don’t just take our word for it—let’s take a look at the facts.
As of June 2023, the average Social Security benefit for retired workers was $1,837 a month.4 That’s only $22,044 a year. To give you some perspective, the federal poverty level for a family of two (that’s you and your spouse) is $19,720.5 Is that a wake-up call? We sure hope so!
Add to that a very legitimate question: Will Social Security even be around when you retire? Nobody really knows. Conventional wisdom says the program will stay in place, but there might be less money available to go around for retirees. If that’s true, then you definitely don’t want to depend on it for your retirement income.
Market chaos, inflation, your future—work with a pro to navigate this stuff.
But here’s the deal: If you consistently invest 15% of your income, you won’t have to worry about whether the White House or Congress will fix the mess that is “Social Insecurity.” That’s because your nest egg will be more than enough for you to live on during your retirement years and still leave a legacy for your loved ones. If Social Security is still around, that income will just be icing on the cake you baked yourself!
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) be done with college, so I won’t be paying for tuition. 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 $315,000 for health care costs in retirement.6 Now, that doesn’t include any long-term care costs, which can run an average of around $108,400 a year in a nursing home or $54,000 a year for assisted living.7
Even if you’re healthy now, people turning 65 today have a much higher chance of developing a severe disability that needs some kind of long-term care in their remaining years. In fact, nearly 70% of Americans 65 and older will need some form of long-term care at some point.8
We’re not telling you all this to scare you, but to show you why it’s so important to invest 15% and build a nest egg that’s large enough to help you pay for all those insurance premiums and health care costs that are waiting for you in retirement.
You Still Have Room to Save for Other Financial Goals
You might be wondering to yourself, Well, why not save more than 15%? Patience, young grasshopper!
Investing 15% leaves enough wiggle room in your budget to put money in an Education Savings Account (ESA) or 529 plan and make some extra mortgage payments that’ll move you closer to becoming completely debt-free!
Once your kids have left the nest and you have a paid-for house, then you can really crank up your investing and race toward that retirement finish line full speed ahead.
How Do I Invest 15% for Retirement?
Now that you understand why you need to invest 15% of your gross income for retirement, it’s time to dive into how to do that the right way.
First, hold off on investing until you’re debt-free and have 3–6 months of expenses saved in your emergency fund. Your income is your biggest wealth-building tool. So, to invest successfully, your income can’t be tied up in monthly debt payments. And your emergency fund removes the temptation to “borrow” from your retirement accounts when unexpected expenses pop up.
Now you’re ready to roll—but where do you start?
When in doubt, just remember this simple formula: Match beats Roth beats traditional. With that in mind, you can reach your 15% goal by following these three super easy steps:
1. Invest up to the match in your 401(k), 403(b) or TSP.
The first place to start investing is through your workplace retirement plan, especially if they offer a company match. That’s free money, folks! And when someone offers you free money, you take it. (Side note: Do not count the company match as part of your 15%. Consider that extra icing on the cake!)
And if your employer offers a Roth 401(k) or Roth 403(b), even better. If you like your investment options inside your workplace plan, you can invest the entire 15% of your income there and voila—you’re done.
But if you only have a traditional 401(k), 403(b) or Thrift Savings Plan (TSP), it’s time for the next step.
2. Fully fund a Roth IRA.
We love the Roth IRA—and once you understand how it works, so will you.
With a Roth option, you contribute after-tax dollars. That means your money grows tax-free, plus you don’t have to pay any taxes on that money when you take it out at retirement. Talk about making investing super easy!
So, once you invest up to the match with your workplace plan, it’s time to fully fund a Roth IRA (if you’re married, you can fund one for your spouse too). The only drawback to a Roth IRA is that there’s an annual contribution limit that puts a cap on how much you can invest in it each year.
That means it’s very possible to max out your Roth IRA and still not hit 15%. If that’s you, don’t panic!
3. Go back to your workplace retirement plan until you hit 15%.
If you still haven’t reached your 15% goal, all you have to do is go back to your traditional 401(k), 403(b) or TSP and keep bumping up your contribution until you do.
Whether you invest through your workplace plan or through an IRA, you need to set up your account for automatic withdrawals—preferably as a percentage of your salary, not a flat amount.
That way, your money will go straight from your paycheck to your retirement account and 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’ll put away over time with every raise or bonus you get at work.
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 around aimlessly with no real plan to getting back on track and investing in your family’s future, it’s probably time 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, connect with a SmartVestor Pro. These investing professionals want you to succeed with money as much as you do.
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This article provides general guidelines about investing topics. Your situation may be unique. If you have questions, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.