Should You Invest 15% Into Retirement Accounts?

life hacking Feb 02, 2024

Investing 15% of your income into retirement accounts is Dave Ramsey’s Baby Step 4.

Is that a Baby Step worth following?

Absolutely, but with a caveat!

I think the percentage is too low.


Yep, here’s why.

Let’s assume you are in your early 40s like me (some of these variables will change with your age).

Average net worth of someone in their early 40s is: $549,600

Now, don’t panic if you’re my age or older and you’re not there. Some say median net worth is a more accurate estimate than the average (likely due to some people who are worth tens of millions or more at that age).

Median net worth of someone in their early 40s is: $135,600

Median household income: $74,580

Plugging in the median net worth & income at with a 15% savings rate, you’ll be financially free (able to live on your investments) in 33.1 years, or when you’re in your mid 70s.

Is that what you’re hoping for? I would guess not.

Let’s increase the numbers a bit.

Let’s say your household income is around $100k and your net worth is between the median & average at around $350k.

Plugging those numbers in gives you 27 years until you’re financially free, or your late 60s. Not much better.

Since you’re reading this newsletter, my guess is that you’d like to be financially free in the next 10-15 years or sooner, not the next 30 years.

That means you need to be putting a higher percentage in your investment accounts.

While Dave Ramsey’s 15% is a great place to start, you certainly should try to double or triple that number if you want to speed up your path to F.I.R.E. (financial independence, retire early).

You may be thinking, “Our budget is tight as it is. How do I speed it up?”

  1. Make more
  1. Spend Less

Or, ideally, both! And then invest the difference.

If you’re paid by your ministry, “making more” can be difficult. That’s why having a side business can be a great way to increase your income. If you’re not paid by your ministry, “making more” can involve promotions at your job, taking a better paying job, or starting a business.

“Spending less” is simple to understand but difficult to execute. It takes a desire to budget, be more strategic with your spending, and make cuts where necessary.

If you need to use 15% as a starting point, that’s great. But don’t stop there. Keep increasing it until it’s at the level that will meet your long-term financial freedom goals.


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