Personal finance 101 – saving for retirement

by Tsh Oxenreider

Tsh is the founder of this blog and just finished traveling around the world with her husband and 3 kids. Her latest book is Notes From a Blue Bike, and believes a passport is one of the world's greatest textbooks.

This is the sixth part in my series on Dave Ramsey’s Baby Steps, a proven personal financial plan. My goal is to explain a really solid money management plan in plain ol’ English, for intelligent yet financially “average” home managers.


Photo by ballycroy

It has taken me awhile to get to Baby Step #4 in my Dave Ramsey series. This is mostly because I don’t understand a lot of it. Don’t get me wrong, I understand the step:

#4 – Invest 15% of your income into retirement savings.

Understanding it – easy-peasy, Japaneezy. Knowing the best way to do it – not so much. Not by a long shot. I’m still researching it for our family, and I’m simply not at a place where I’m confident enough to write about the various methods of accomplishing this step.

I understand the importance of doing it, the why behind the what. I want to retire with my hubby where we’re not a burden to our kids. We have no desire to throw in the metaphorical towel of life and kick back in Miami, we want to bless those around us doing whatever we’re called to do, no matter our age or health. This will take money. Not a lot, hopefully, but enough.

Here’s the nuts and bolts of Dave’s advice:

What we teach is to invest 15 percent of your pre-tax income for retirement once you get to Baby Step Four. You should start with contributions to the 401(k), putting in just enough to get the company match, then max out the Roth IRA. If you get no company match, then start retirement investing with the Roth. The reason is that a Roth IRA grows tax-free and is a better option than the 401(k), which grows tax-deferred. It’s a three step process; first contribute what your 401(k) matches, then the Roth, then go back to the 401(k) and contribute until you hit 15 percent. Don’t get too enamored with the full-service investing stuff … just do basic mutual funds.

Dave is into mutual funds more than any other type of investment (except possibly real estate, but only when bought with 100% cash). He recommends only mutual funds with at least a 10-year track record of doing well, averaging around 12% (which some people out in the blogosphere balk at, saying 8-9% is more realistic). With a somewhat predictable inflation rate of about 4%, you’re ideally looking for an 8% return on an investment (12% – 4% = 8%).

Bankrate has a good calculator to help you determine your basic retirement needs. Here’s a snapshot from their site:

In this example, if you’re 30 and would like to retire at 65 with an annual income of what would be $30,000 today, with a conservative 8% rate, you’ll need to save a total of almost 2 million dollars. That would be around $132,000 invested.

Now if you’re following Dave Ramsey’s Baby Steps, you wouldn’t be on this step until you’re debt-free and have 3-6 months of living expenses in savings. So even if your company does a 401(k) match, he recommends stopping all retirement contributions until you’ve checked these steps off. That’s scary to most people, which he says is a good thing, lighting a fire under you to get the ball rolling.

We personally are not yet on Baby Step 4, so technically, we shouldn’t be contributing to retirement. But we are (shhh… don’t tell Dave). But it’s not much – 8% right now. Of course, we’ll definitely bump it up to 15% when we’re officially on this step!

Quite honestly, I don’t know much more about investing. But there are lots of good reading and resources out there, so I’ll point you in their general direction:

Here are the retirement-tagged posts over at No Credit Needed – they’ve been debt-free for a couple years, and so far, I like most of what is said over there.

Here’s a Practical Investing Guide for Beginners (that’s me!) at Being Frugal, guest-posted by Pinyo at Moolanomy.

And speaking of which, here are Moolanomy’s retirement-tagged posts. All worth reading.

Missed other parts of my series?

Join the Conversation

Like This? Subscribe for free and have it delivered to your inbox.

Prefer to subscribe via RSS?


  1. I saw Dave Ramsey speak here in Memphis a few years ago. He seems to be a great guy with a good head on his shoulders to be sure. But I’m not sure what I think about only investing in real estate if you pay 100% cash for it. You can leverage debt quite powerfully to purchase assets you’d never be able to mess with if dealing only in all cash.

    Well it’s food for thought anwyay.

    Thanks for an interesting post.


    jp mosess last blog post..Freddie Mac Tweaks Rules, Pokes Investors In Eye

  2. Looks like you are doing great and you definitely knows more than what you said you know — humility is a great quality!

    Although I disagree with certain aspects of Dave’s advice, I think he is a great guy, very knowledgeable, and a gift to many people.

    Thank you for sharing my guest post and articles.

    Pinyos last blog post..Iowa Flood Is Making Me Nervous

  3. @Pinyo – Thanks so much! Love your blog – I’m honored to have you comment over here. :)

  4. Dear Simple Mom,

    I really like your style of writing and you have some great tips on how to build up passive and residual income for the future.

    Thank you also for putting us on to that BankRate retirement calculator so that we can calculate how much income we should be putting aside. A very useful online income tool for sure!

    Nice design and writing keep up the good work!


    Mike Migal´s last blog post…Make Residual Income by Investing Some of What you Earn

  5. I am 66 should I still be investing into roth?

  6. This was great info! I use for my planning, do you think it is good to have more than one advisor?

Add Your Thoughts