Invest 15% for retirement

Step 4: Invest 15% for Retirement.

According to the Social Security Administration, the average monthly social security payment is $1,840.27.

That is $22,083.24 per year!

(And that doesn’t guarantee social security will be around when you retire)

I want you to have more than $22,000 per year when you retire. To do this, we need to start thinking about and investing in your retirement as early as possible.

If you haven’t started thinking about retirement, let’s start now. The earlier you start investing for retirement, the longer your money has to grow.

Once you have paid off all of your debt (except the house) AND fully funded your 3 to 6 month Emergency Fund, it is time to start investing.

Let’s start by investing 15% of your income into retirement.

If your employer offers retirement accounts, awesome! That is a great place to start.

Many employers even offer a match. Meaning, they will match your contributions up to a certain percentage. (That’s free money, and we want to take advantage of it.) An example of this is when an employer says they will match 100% of your contributions up to 6%. Let’s say you make $75,000. YOU contribute 6% of your annual income ($4,500) to a retirement account, your EMPLOYER will also contribute $4,500 to your retirement account. That is a 100% return on your investment!

If your employer does not offer a retirement account, you can look into Roth IRAs and Traditional IRAs.

Note: If you are contributing to an IRA/Roth IRA your money lands in a Money Market Account within the brokerage. You will need to go into your account and distribute it to “investments”, otherwise it will grow at the money market rate.

The important thing is to start contributing, and continue contributing to your retirement.

If you just worked through the debt snowball, and built your emergency fund, you can continue to use the amount you were paying towards debt to invest.

As mentioned above, the faster you can get out of debt, and the earlier you can start investing and contributing to your retirement, the longer your money has to grow.

Here is an example of how compound growth and time can work in your favor. In the example below, our retirement age is 62.

Example: Starting at age 22, you invest $200 per month into a retirement/brokerage account that grows at 7% per year. After 40 years, you could potentially have $524,962. You would have contributed $96,000 over 40 years. The power of compound growth would account for $428,962!

What if you start at age 32?

Example: Starting at age 32, you invest $200 per month into a retirement/brokerage account that grows at 7% per year. After 30 years, you could potentially have $243,994. You would have contributed $72,000 over 30 years. The power of compound growth would account for $171,994!

What if you start at age 42?

Example: Starting at age 42, you invest $200 per month into a retirement/brokerage account that grows at 7% per year. After 20 years, you could potentially have $104,185. You would have contributed $48,000 over 20 years. The power of compound growth would account for $56,185!

Reminder: If you begin contributing to your retirement account, make sure you account for it in your budget! Otherwise you will come up short each month.