The 15% Reasoning

Melanie asks Dave to explain his 15% requirement on retirement contributions.

QUESTION: Melanie on Facebook asks Dave to explain his 15% requirement on retirement contributions.

ANSWER: When I’m talking about Baby Step 4 saving 15% of your income towards retirement, what I’m talking about there is 15% of your gross. It’s not a thing that if you save 14%, you’re not going to make it or if you save 16%, that means you’re going to be rich or something like that. It doesn’t mean any of that, so don’t be too nerdy about this, but the bottom line is if you make $50,000 a year, you need to be saving about $7,500 a year, which is about $600 and some change a month. The only way you can do that is if you get rid of the stupid car payments and get out of the land of MasterCard and Discover-ed bondage and American Distress and those kinds of things. When you get your debts cleaned up, it’s easy to have your fully funded emergency fund and to be trekking right along and saving 15%. By the way, if you save 15% of your income making $50,000 a year, you’re going to retire with $7 million or $8 million if you start that at age 30. This is worth doing.