Dave Ramsey & Suze Orman: The Retirement Investment Guide You Need To Be Successful
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Angela Mae
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Molly Sullivan
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Deciding when to retire is one of life’s big challenges, though no more so than ensuring you have the funds to do so. Making sure you have a successful retirement involves having a solid, long-term financial plan.
Although everyone’s path to retirement is different, these are some tried and true strategies that’ll help you get there.
Know Your Goals and Make a Plan
Before you can retire, you’ll need to know your goals and map out how you want to achieve them — whether it’s through investing, saving, downsizing or a combination of all three.
Dave Ramsey shared some steps to successfully plan for retirement on his website. Here are his top tips:
- Invest 15% of your gross — before tax — income in tax-advantaged retirement accounts like a Roth IRA and 401(k).
- Decide when to take Social Security.
- Make a financial plan revolving around anticipated medical and long-term care costs.
- Maintain a long-term perspective as this will help you stay on the right track and avoid potentially costly mistakes along the way.
As you make this plan and consider your financials, ask yourself what you want your retirement to actually look like.
“Do you want to ride around the country in an RV? Buy a house on a lake and go fishing every day? Spend a bunch of time with your grandkids?” Ramsey’s website asked.
Knowing all of this will help you prepare for retirement and how much it’ll cost.
Save and Invest at Least 15% of Your Income
According to Ramsey, you should invest at least 15% of your gross income in growth stock mutual funds — something you can do through tax-advantaged retirement accounts like a Roth IRA or 401(k).
The reason why he suggested 15% as opposed to a higher or lower number is because that amount can help you make serious progress toward your retirement goals without cutting into your ability to handle other expenses — like your kids’ college education or paying off your mortgage early.
Be prepared to invest that 15% for a long period — say 25 or 30 years. If you do that, even if your starting income wasn’t ultra-high, you could still end up with a nice retirement nest egg.
Wait To Withdraw Social Security
Most people can collect Social Security in their 60s, but Suze Orman recommended waiting until you hit 70 to do this. You’ll want to consider your own needs and situation, but if you’re reasonably healthy and can wait, you’ll get a larger benefit amount later in life.
According to Orman, those who wait until they’re 70 to collect their benefits can receive up to 76% more each month than if you start collecting at 62. She also noted that you don’t necessarily need to work full time until you’re 70. Depending on your other investments and savings, you might be able to retire early without receiving benefits.
Keep Investing In Your 401(k)
For those who have an employer-sponsored retirement plan — like a 401(k) — the best option is to keep investing in it. Don’t cash it out just because you leave or lose your job. This can be a major mistake, according to Orman.
The biggest reason for this is that the money will continue to grow while in that account. If you really need the money, try to keep your withdrawals to a minimum.
Instead of cashing it out, see if you can move your 401(k) to your new employer. Alternatively, convert it into an IRA instead.
Pay Off Your Home
Living debt-free is a key way to build financial stability, but this does mean finding ways to pay off your home early. In many ways, your home is an investment. The sooner you get rid of that mortgage, the better off you’ll be financially.
“We’ve talked a lot about how to build up your retirement nest egg through investing. But you also need to set a goal to enter retirement completely debt-free,” Ramsey website said. “Debt equals risk, and we want to eliminate risk from your retirement dream.”
He went on to say that for many millionaires, two-thirds of their net worths come from their retirement savings while one-third comes from their paid-off home. It’s OK if you can’t pay off your mortgage immediately, but you’ll still want to do it before retiring, he said.
Invest In an HSA and Long-Term Insurance
One of the fastest ways to run out of retirement savings is to forget about healthcare costs. That’s why Ramsey suggested investing in a health savings account (HSA) and buying long-term care insurance.
An HSA lets you contribute pretax money into an account that grows tax-free. You can also withdraw from that account without paying taxes, provided it’s for qualified healthcare expenses. Once you reach a certain age, you can make tax-free withdrawals for other things as well. This makes an HSA a solid investment option for your future retirement — especially if you don’t plan to retire for a couple decades.
Ramsey also suggested getting long-term care insurance. You’ll need to pay a premium, but having it can be beneficial if you ever end up needing assisted living, a nursing home or in-home care.
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