If you’ve been to one of my live events or listened to an interview, you’ve heard me tell people that they need to invest 15% of their gross income to build wealth for retirement. So why is 15% the rule of thumb? Why not more? Or less? There are a couple of reasons. They’re called your mortgage and your kids.

Most people want to invest for the future, but they feel overwhelmed in the face of more pressing needs in the present. Chances are, you want to save up and buy a home. And at some point, a majority of Americans have kids. Kids mean college funds. Investing 15% of your gross income leaves you enough wiggle room to pay off your mortgage and save for your kids’ education at the same time.

How you invest that money depends on whether or not your employer offers a savings plan and a company match. Some companies match your contribution (to a point) when you put money into a retirement account. If you have the opportunity to participate in a match benefit, take it! That’s free money!

Investing With Roth 401(k)

If your company offers a Roth 401(k) option, you could invest your whole 15% there and not have to worry about investing elsewhere. With a Roth 401(k), you contribute after-tax dollars, so your money grows tax-free! You may get a match on top of your contribution, too. Talk about making saving for retirement super easy!

Take it one step further by signing up for automatic withdrawal. This takes the money straight from your paycheck to your retirement fund. You won’t even see it. This keeps you from missing it—or wishing you could skip investing and spend it on something stupid. In my years of financial coaching, I’ve learned that stupid is waiting just around the corner!

Investing Without Roth 401(k)

If your company doesn’t offer a Roth option, start by investing up to the match. From there, invest the rest in a Roth IRA. For example, if your company offers a 3% match, invest 3% in that program and then put the remaining 12% into a Roth IRA. If that remaining 12% would put you over the annual contribution limit for a Roth IRA ($5,500 if you’re under age 50, $6,500 if you’re 50 or older), contribute the maximum amount to the Roth IRA and then go back to the 401(k) to save the rest there.

Here’s how that might look:

Gross income: $50,000

Amount to invest (15%): $7,500

401(k) contribution of 3%: $1,500

Amount remaining to invest: $6,000

Roth IRA investment: $5,500

Amount remaining to invest: $500

Addition 401(k) contribution: $500

Amount remaining: $0

I want you to notice two things: First, the 15% is calculated from your annual gross salary, not your take-home pay. Second, your company’s match does not count as part of your 15%. Consider that extra icing on the cake!

What to Remember When Investing

Remember, though, that you should pay off all debt (except the house) and have a full emergency fund of three to six months’ expenses before you start investing for retirement. It’s okay to put the retirement savings on hold temporarily until you’re debt-free and have your emergency fund intact. Then it’s full speed ahead!

Related: Why You Should Have 3 to 6 Months’ Expenses Before Saving for Retirement

Once your home is paid off, you can get intense about saving and investing for retirement. You can put away some serious cash when you’re debt-free!

One last thing to remember: Don’t try to navigate the waters of retirement investing alone. Get help from a professional who understands the ins and outs of the market. They can answer questions and suggest changes to make the most of your investments. Meet with them often to keep your plan on track and make any adjustments.

Stay inspired, work your plan, and make sacrifices today—and watch your retirement dreams come true!


  • Alexis Valadez

    where should one put additional (to 15%) money?

    • Da Miller

      Either back into the 401(k), even though it won’t be matched, or into a group of mutual funds. Chris Hogan and Dave Ramsey talk a lot about mutual fund selection in their books and on their websites.

    • lzw

      Once your mortgage is paid off and you’ve maxed out your Roth IRA, you can max out your 401K contribution. I don’t remember what it is this year.. it’s either $17500 or $18000. After that, then you can invest as a regular investor… where the money might not necessarily be tax sheltered/deferred.

  • Michael Bailey

    Why do you put the money in a Roth first? Wouldn’t you be able to gain more interest on a 401k since you can contribute more in the long run? I’m confused on that part.

    • Brandon Holtzinger

      Your money grows tax free in a roth.

      • Robert Grant

        Your money grows tax free in a 401k or an IRA also, but you are taxed when you take your money out after retirement. The difference is that you pay no income tax when you take money out of the Roth after retirement since you are using after tax money (money that you have already been taxed on) to fund the Roth.

    • Dave Bennett

      Yes, your money grows tax free while in the ROTH IRA, but you have paid taxes up front; money that if you are disciplined, you could otherwise invest somewhere else and gain additional returns. Where you pay taxes up front or at the back end, the government is going to get your money.

      Let’s say you and your spouse fall into the 15% tax bracket and put the maximum amount allowed in an IRA which is currently $11,000 combined. Investing in a traditional IRA will cost you over $1,500/year up front which amounts to $37,500 over a 25 year period. If you are disciplined and had invested that $37,500 wisely over that 25 year period, you would be making money on that amount instead of the government pumping it into and ever increasing deficit.

      That caveat here is that if you and your spouse contribute to a 401K, deduction for investing in a traditional IRA goes down at 91k income and is eliminated at 116k.

      Regardless, you have to carefully consider whether you invest in a traditional IRA, a ROTH IRA, or just pump extra money into your 401K.

      If you can have the discipline to invest what would have been paid in taxes, I always side with investing pre-tax dollars. Keep as much of your money growing as you go for as long as you can.

  • What if your employer doesn’t offer a 401K and you’re already maxing out your Roth?

    • Shelton Hansen

      You can open an “retail” or “non-qualified” investment account. You invest in it just like the IRA’s but there is no tax benifit (however it is tax deferred, so no taxes until you take money out…which you can do at anytime).

      You can also do a annuity or variable annuity. Those have or can have guarantees for the rate of return but there are penalties normally if you need to get a large amount of it out.

      So there is definitely options for you to put your money to work for you to be ready for retirement. Ask an investment professional for help.

  • lzw

    I am planning to stop working within the next 18 months to be a stay at home mom to our 3 children. Should my husband and I max out our retirement now instead of just 15%, knowing that our income will drop drastically soon and probably we will not be able to contribute much into it in the future? We are debt free and have our emergency fund of 3 to 6 months. We are also hoping to sell our house that we are renting out currently, so we would no longer have a mortgage. We currently live in a parsonage as my husband is a pastor.