How Much Should You Invest for Retirement?

The only thing scarier that running out of money in retirement is all the sketchy TikTok advice on how to save for retirement.

Seriously, it’s frightening.

But here’s the deal: No matter what CryptoBen32 says on his social media from his mom’s basement, investing in good growth stock mutual funds with a solid track record over time is still the best way to grow your money and set yourself up to retire with dignity.

So, how much should you invest in retirement each month to be financially secure? The answer is pretty simple. 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 a million likes. But that 15% number has helped thousands of Baby Steps Millionaires build wealth, and it’ll help you become confident about your retirement outlook.

Why You Should Invest 15% of Your Income in Retirement

We recommend saving 15% of your gross income for retirement because research has shown again and again that your savings rate—how much you save—will determine whether or not you’ll have enough money for retirement more than anything else.¹

Too many folks get so caught up in rates of return or picking the right investments that they end up not saving anything at all. But guess what? You can spend all the time you want looking for the perfect investment, but if you don’t actually invest some money into your 401(k) or IRA, it won’t matter because you won’t have any money in your nest egg! Duh!

Seriously, folks—retirement isn’t free, and you only have so many years to save. So let’s look at four reasons you should invest 15% of your income in retirement:

1. 15% Will Help You Build a Solid Nest Egg

Let’s start with a real-world example on why you should shoot for 15%.

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 $931 a month 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 when they reach retirement?

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)

Percent Invested	Monthly Contribution	Annual Rate of Return (%)	30-Year Total
15	$931	11	$2.61 million
10	$620	11	$1.74 million
5	$310	11	$869,400

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.

We get it—this economy is crazy. The prices of everything seem to be skyrocketing. And there’s a real temptation to skimp on your retirement savings so you can bring home more of your paycheck each month. But there are smarter ways to increase your income than stealing from your future retired self.

2. 15% Leaves Room in Your Budget for Other Financial Goals

You might be wondering to yourself, Well, why not save more than 15%? Patience, young grasshopper!

Market chaos, inflation, your future—work with a pro to navigate this stuff.

We tell folks to invest only 15% for retirement because you’ll need money for some other important financial goals—like saving for your kids’ college funds and paying off your house early.

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. 

3. 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 May 2024, the average Social Security benefit for retired workers was $1,867 a month.⁴ That’s only $22,404 a year. To give you some perspective, the federal poverty level for a family of two (that’s you and your spouse) is $20,440.⁵ Is that a wake-up call? We sure hope so!

Add to that a very legitimate question: Will Social Security still 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.

But here’s the good news: 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 likely 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!

4. 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, insurance, 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.

Estimates show that a 65-year-old couple will need about $315,000 for health care costs in retirement.⁶ And that doesn’t even 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 requires 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.

The Best Way to 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 so will you once you understand how it works.

With a Roth option, you contribute after-tax dollars. That means you pay the taxes on that money up front so your money grows tax-free. Plus, you won’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%. Don’t worry, we’re not done yet!

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.

How Much Do You Need to Retire?

There’s no one-size-fits-all approach to retirement planning! How much you need in your nest egg will probably look a lot different than what Harry and Sally, who live down the street from you, need.

Some folks will need $5 million to have the kind of retirement lifestyle they’ve always dreamed about. Others can comfortably live out their golden years with $1 million in their retirement accounts. There’s no right or wrong answer here—it all depends on how you want to live in retirement!

The trick is this: You want a retirement fund that’s large enough that you can live off the growth it creates each year without ever touching the principal amount. In other words, you want to live off the golden eggs without killing the golden goose!

For example, let’s say you have $500,000 in your nest egg, and it’s invested in mutual funds that average a 10% annual rate of return. That means your accounts would average $50,000 in investment growth each year. The question is, can you live off of $50,000 in retirement each year? Only you can answer that, and we have a free tool that can help you find your retirement number! 

But here’s what we can tell you: If you do what we teach—if you follow the Baby Steps in order and consistently invest 15% of your gross income in tax-advantaged retirement accounts like a 401(k) and Roth IRA—then you’ll most likely have more than enough money saved for retirement. And you’re going to need that money, because guess what—life might slow down at retirement, but it doesn’t stop. You’ll still need a monthly income to live.

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.

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.