Baby Step #4: Direct 15% of your annual pre-tax income into your retirement plans. Utilize tax-advantaged accounts such as 401ks and Roth IRAs, if eligible.
If you are on this baby step, that means you have completed baby steps 1, 2, and 3! Congratulations!
Before this step, we were working on "cleaning the slate" of debt, and having our cushion emergency fund. Now it's time to get your retirement funds in shape! Contribute the maximum amount you can, your goal being contributions of a full 15 percent (or more) of your household's gross (pre-tax) income. If you have tax-advantaged plans (401k or Roth IRA, for example) available to you, then use them to their fullest extent. If your company matches any part of your contributions, do not consider this as part of your 15 percent. Additionally, do not include expected Social Security benefits in your retirement calculations. "I don't count on an inept government for my dignity at retirement, and you shouldn't either," Ramsey says. Chances are, Social Security benefits will be long gone before it is time for us to use them.
At this point, if you haven't already done so, it is time to begin seriously educating yourself about mutual funds, stocks, and the financial markets. You don't want to blindly put your money where you don't understand what is happening.
"Getting older is going to happen," Ramsey says. "You must invest now if you want to spend your golden years in dignity."
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