Dave Says: Fifteen Percent

by | Nov. 22, 2011


Dear Dave,

Would you explain your 15 percent requirement on retirement contributions as listed in the Baby Steps?


Dear Melanie,

When I talk about Baby Step 4, which is saving 15 percent of your income for retirement, I’m talking about 15 percent of your gross annual pay. Now, you don’t have to get too nerdy about it. It’s not like you’re going to die a pauper if you only save 14 percent, or be ridiculously extra-wealthy if you save 16 percent. The bottom line is you should be able to save $7,500 a year if you make $50,000 annually. That’s only about $600 a month.

But, the only way you can do this is if you lose stupid things like car payments and credit cards. Get out of the land of MasterCard bondage and American Distress! When you get out of debt, it’s easy to set aside an emergency fund of three to six months of expenses and breeze right along pumping 15 percent into retirement.

By the way, did you know you can retire with about $7 million if you save 15 percent of a $50,000 a year income and invest it in good growth stock mutual funds starting at age 30?
Sounds like it’s worth doing to me!


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