While Social Security (according to a survey by the Employee Benefit Research Institute) is the largest source of income for retired Americans, retirement plans including 401(k)s also play an important role.
And personal finance advisor Dave Ramsey says average Americans, regardless of their age, can still start planning and saving for retirement.
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According to Ramsey, more than half of Americans have not yet begun investing during their retirement years and 60% say they feel behind in their savings aspirations.
The author offers some financial guidelines for people of different ages who may be late to planning retirement savings.
For example, a 40-year-old with a salary of $55,000 and no retirement savings could save 15% of their gross income. That's $688 each month in your 401(k) and IRA.
A worker who uses this approach for 25 years could still end up with $1 million in retirement savings at age 65, Ramsey maintains.
Similarly, people ages 45 to 54 are in their peak earning years, with a median household income of about $97,000. Fifteen percent of what you invest in retirement becomes $14,550 a year.
Investing that amount over 20 years can also generate $1 million with time and compound interest, according to Ramsey Solutions.
With this in mind, Ramsey offers some other steps people can take to achieve a comfortable retirement, even if they're starting late.
Dave Ramsey Offers Five Steps to Catch Up on Retirement Savings
Ramsey identifies five steps the average American can take to improve their retirement financial ambitions.
First, Ramsey suggests maximizing the amount of money people put into their retirement accounts.
These include employer-sponsored 401(k), 403(b), and more retirement plans. Ramsey wrote that employer matching contributions and tax-friendly contributions can help generate growth.
In 2024, individuals will have the ability to invest up to $23,000 in their 401(k). Workers who are 50 or older can add $7,500 to that total.
Individual retirement accounts (IRAs) can also contribute to retirement savings. Individuals can contribute up to $7,000 to their IRA accounts in 2024. Starting at age 50, that maximum rises to $8,000.
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Second, Ramsey suggests aggressively finding ways to save money in monthly budgets.
These may include measures such as canceling subscriptions to streaming services and gym memberships. Ramsey also suggests dining out less and preparing meals at home.
Another savings tip Ramsey suggests is finding better deals on car insurance. Most people have not looked at these options for a significant period of time. There are many plans available and you can often find those that save money on current rates.
“Remember, you're making short-term sacrifices that will help you retire on your own terms, and that's worth fighting for,” Ramsey wrote.
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Dave Ramsey suggests increasing your income
Another tip Ramsey recommends to people is to look for ways to increase their income.
This approach may involve finding a second job, such as delivering pizzas in the evenings and weekends or tutoring students in academic subjects about which people have important knowledge to share.
As a fourth step, Ramsey explains ways people can use their homes as a tool to accumulate additional wealth.
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One strategy is to pay off your mortgage at an accelerated pace. If a homeowner can pay off a mortgage before age 55, that frees up a lot of money to invest in retirement savings.
The final suggestion Ramsey makes is to consider retiring a few years later than originally planned.
“If you feel like you're really behind, what would happen if you kept saving and working until you were 70?” Ramsey wrote. “That gives compound interest five more years to take effect, and those five years can make a big difference.”
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