Dave Ramsey Says to Save 15% of Your Income for Retirement. Is That Enough?

How much of your income should you be saving for your retirement? This is a question that absolutely every worker needs to be able to answer. While Social Security benefits will help you fund your retirement, the fact that they replace only 40% of pre-retirement income means that, by themselves, they cannot provide you with a comfortable standard of living. Unless you’re one of the small minority of workers who get a pension from your company, this means you must save enough to cover your costs and live the life you’ve hoped for in your later years. 

So, what should you be saving to do that? Finance guru Dave Ramsey has an answer.

The Ramsey Solutions blog suggests that you save 15% of your gross income and that you put it into tax-advantaged retirement accounts on a monthly basis. In particular, Ramsey suggests putting this 15% into a 401(k) or an IRA every month. The big question is, will that be enough? If you listen to Ramsey and invest 15%, will you have the retirement security you deserve, or do you need to save more?

Is 15% of your income enough money to save each month for retirement?

Ramsey’s suggestion to save 15% of your income makes sense — for some people. However, your retirement savings needs are dependent on factors that are individual to you, so following basic rules of thumb like this doesn’t always make sense.

For example, if you are getting started with saving in your 40s or 50s, saving 15% of your income may not be nearly enough to allow you to save a sufficient amount of money to retire with no financial worries. Since you have less time for compound interest to help your wealth grow, you may have to save substantially more unless you want to work well into retirement age. Likewise, if early retirement with a big investment account balance is your goal, saving 15% of your income probably is not going to get you there.  You’d need to invest more to achieve your desired lifestyle as a retiree. 

On the flip side, if you start saving when you are 20, you make a good amount of money, and you just want a simple retirement in your late 60s, then you may not necessarily need to invest 15%. If your employer offers a pension or has a very generous 401(k) match, then saving 15% also might be overkill.  While there’s nothing really wrong with saving more than you need, you also don’t want to make your life harder throughout your working years if you’re already on track to end up with plenty of money to live on as a senior. 

How to set your retirement savings goals

So, if you aren’t going to listen to Ramsey’s advice to save 15% of your retirement income, how should you set your retirement savings goals? The best way is to decide how much money you need invested to produce the income you’ll need and to work backwards from there. 

Say, for example, you decide that you want to spend 80% of the amount you were earning before retirement, and you expect to be earning $100,000 by the time you stop working. In that case, you’d need your investment accounts to produce $80,000 in income. If you plan to follow the commonly accepted 4% rule for safe withdrawals, you’ll multiply your target income number by 25 to see how big your investment account balance needs to be. So, in this case, you’d need $2 million invested. 

Armed with this information, you can use the calculators at Investor.gov to see what you must save each month, based on your current age, the number of years until your retirement, and the returns that you expect to earn going forward. This number is the correct amount to invest, which may be more or less than 15% of what you are earning. Doing this exercise will help you to make more accurate projections so you can live the life you want in your senior years.

You can also work with a financial advisor to get a personalized estimate of the amount you’ll need invested, which could be a smart move if you’re confused about how to set your savings goals and want to make sure you don’t fall short.