How Wealthy Do You Want To Be?

Jim is calling because his wife is a government employee, and she will get 20% of her final salary at retirement. How should they be planning for her retirement and saving?

QUESTION: Jim in Atlanta is calling because his wife is a government employee, and she will get 20% of her final salary at retirement. How should they be planning for her retirement and saving? Dave says it depends on how rich they want to be at retirement.

ANSWER: You should be setting aside 15%. If they give you more money, that’ll be a bonus. You could lower it if you wanted to lower it, but how wealthy do you want to be? Where do you want to go at retirement, and what does a golden rocking chair look like exactly? I can give more if I have more. Putting 15% in retirement is only Baby Step 4. Baby Step 5 is kids’ college, Baby Step 6 is pay off the house, and Baby Step 7 is get rich and give a bunch of it away. Part of what falls under Baby Step 7 is to max out all retirement because we keep the government’s hands off of stuff. At some point in the process—hopefully sooner rather than later—you’ll be at that Baby Step 7 where you’re building wealth and you’re maximizing all retirement tax shelters that are available to you, whether it’s Roths or 401(k)s. Then, on top of that, if she gets the government pension at retirement, that stabilizes things even that much more.