Investing For Retirement – Do It Your Way!

retirement nest egg

Funding Your Retirement Should Be Exciting

You have climbed the mountain and are at the top!  You have eliminated your debt and now have your fully funded emergency fund in place.  When life happens to you, you will be ready!  I am proud of your persistence and determination because most people either cut corners, or decide to do nothing at all.  Not you though!  You are on a roll, and since momentum is on your side, there are some things you need to start doing to be ready for retirement.

As some of you know, Dave Ramsey suggests that you invest 15% of your take home pay for retirement in baby step 4.  Some say it is too much and some say it is too little.  Again I have decided to give you more choices depending on your situation, motivation, or abilities.

Maybe you do not feel like you can manage to save 15% of your income yet,  OR maybe you are just more gazelle intense and want to beef it up even faster than 15% will allow.  Whatever your case, there is an option for you.  Again, I must point out that you should be realistic with your choice.  If you are cutting yourself short each month then you will not be able to attack your mortgage with focus and intensity.  On the other hand, if you aren’t funding your retirement enough because you want more fun money each month, then you may find that retirement will have to be moved to a later date.

No matter what plan you choose, it is better than relying on the Government provided Social InsecurityRelying on Washington is NOT a real plan.  It is more of a lazy mans plan.  As I have said before, you can WAIT or CREATE! The choice is yours.  Now that you know that retirement is important, let’s talk about where to start.

Roth IRA’s And 401K’s

I like Dave Ramsey’s advice.

First, you would look to invest up to the company match in your 401K.  If your company matches 50% of your contribution, up to 3% of your pay, then you would stop at 3%, and then max out your Roth IRA’s.

If you receive no match at all then you would start with the Roth and invest whatever you can each month to enable you to max it out for the year.

If you still have not reached the percentage you chose then you would go back to topping off your company 401K.

Remember, whenever investing, do not invest in something you do not understand.  Know how your investment works inside and out before you invest your hard earned dollars.

Invest for retirement in this order up to chosen percentage:

  1. 401K- Company Match (if applicable)
  2. Roth IRA (if eligible)
  3. 401K- No Match

Do It Your Way!

As I said, Dave suggests investing 15% of your take home pay for retirement when you reach baby step 4.  I think this is a good number but think that certain situations require a different approach.  Choose what’s best for you!

Considerations to be made when deciding:

  1. age (years till retirement)
  2. income level
  3. retirement goals
  4. lifestyle

Invest 5% of your income – I personally think that 5% is not enough, but realize that some people feel restricted by investing more.  If you are 50 or older this is a risky choice.  If not, then you may want to adjust your lifestyle to accommodate more retirement savings.  Saving for retirement is more important than most other financial obligations.  Set your priorities!

Invest 10% of your income – If you think 15% is too much then this is the choice for you.  Maybe your income will rise and you can bump it up later, but for now at least you are investing for your retirement.  Perhaps you want to be more aggressive with paying down your mortgage.  If so this might provide some balance.

Invest 15% of your income – I personally believe that 15% is the best choice for most circumstances.  15% is somewhat aggressive, but not really.  Investing 15% of your net income for retirement should be a reachable goal if you have no debt, large savings, and a reasonable lifestyle.  Still, the choice is yours.

Invest 20% of your income – If I was 20 all over again, or made more than $100,000 a year, this would be my choice hands down.  Also if you are 50 or older you should consider this option.  Without having to worry about funding college in baby step 5 you can afford to throw the extra amount towards retirement.  Furthermore, if you have no mortgage, you should be going hog wild to save as much as you can for that much needed nest egg.

Retirement Investing Is A Must!

Retire with dignity!  Don’t rely on Washington to coddle you in your retirement years.  Do it yourself and do it now!  Your golden years should be spent living and loving rather than pinching pennies because you are on a fixed Social Insecurity budget.  Give yourself options at retirement instead of stress!

About Brad Chaffee

7 Responses to “Investing For Retirement – Do It Your Way!”

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  1. Blake says:

    Hey Brad,

    I agree with the order suggested, but I’d like to point out that we don’t want to forget about regular taxable accounts either. For those of us that start saving hard-core early enough, it’s highly likely that we won’t still be working in a traditional job as we near retirement age. But even if our IRAs and 401k’s hold a great deal of money by age 45, and we’re ready to call it quits, we probably don’t have many options (at least that I know of) other than getting slapped with fees and taxes for withdrawing early.

    I’m managing to save a little bit now in college, but once I’m out and my income (hopefully!) grows quite a bit, I’m ready to really hit the ground running and save like a madman! :b

  2. Dave says:

    I love Dave Ramsey, but I would focus on a few more aspects outside the stock market. I think property investment can be just as successful (or not also). I agree with you that if I was 20 all over again after all that I have learned, I think I would be much better off now. I knew everything then but was to arrogant and ignorant to even take my own advice.

    Great blog….

    • Brad Chaffee says:

      Blake: I agree with you. The above list is for starting retirement, with those being the best way to take advantage of tax breaks. Retirement accounts that hit you with excessive fees and taxes for early withdrawal typically aren’t cashed out earlier than 65. At least that’s usually the plan. 🙂 For anyone wanting to retire early, they would definitely need to utilize more liquid investment strategies. I would personally use Mutual Funds for this purpose. Can’t wait till we get to that point in our plan. 🙂

      Dave: Property investment is a good way to build wealth. I plan to buy homes one day as investments as well but that will come later, after the mortgage is paid off. The point of the retirement account is to get something started while you attack the mortgage or save 100% for the purchase of a home. After that, with no debt of any kind, the hardcore investing will begin. Real Estate and Mutual Funds galore! LOL Boy I can’t wait! 😀

  3. Brad,

    Great advice, I will definatly have to pick up The Total Money Makeover. As far as the savings plan goes I’m saving up to the match at my work retirement program with me contributing 3% and matching 100%

    I hope to start adding more to my Roth IRA again, I stop funding it before I got married so I pay for other things and haven’t been able to get back to it since.

  4. Blake says:

    Thanks for the reply Brad. Your plan sounds solid to me; it probably gives you even more incentive to pay off the mortgage ASAP! 😀

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