Funding our retirement the “The Total Money Makeover” way

We’re nearing the end of December, and as we do, Julie and I are preparing to revamp our monthly budget for 2010.  One of the biggest changes that we’ll make will be to add a “retirement contributions” line-item.  We’ve completed Dave Ramsey’s Baby Step #3 (a fully-funded emergency fund), and up next, we’ll be figuring out what portion of our income will be dedicated to investing in retirement.  With that in mind, here are the main points from Chapter 9 in DR’s The Total Money Makeover (affiliate link):

• Once your emergency fund is complete, don’t blow the extra money you’re saving by not contributing to it—it’s time to put that same energy in a new direction.
• Retirement is about having security, and having the opportunity to choose what you’d like to do during that time of your life
• 15% of your annual income is a good goal for retirement investing, and it leaves room to fund college education for the kids and to start thinking about paying the house off early.
• Invest retirement funds in growth stock mutual funds, equally divided among the following types of funds:
  • Growth
  • Growth and Income
  • Aggressive Growth
  • International
• If your company offers a match to you 401K or 403B, do that match first.  Then, invest in a Roth IRA to gain the advantage of the investments being tax-free.
• The rest of this chapter includes some excellent worksheets for calculating retirement goals.

Our advice? This is just one way of thinking about the business of planning for retirement, and we certainly wouldn’t recommend that you simply take our endorsement of it simple at face value.  Do some research for yourself and continue to become financially literate.

However, if this approach is making sense or is exciting to you, Dave’s book is really a must-read and a must-own.  The principles he suggests have changed the way Julie and I think about our money (this may be obvious at this point ).

If you have additional questions about any of the terminology included in this summary, you’ll find it well-explained in the book.  You might also consider enlisting the services of a financial planning professional.  There are people out there who have made these issues their career, and some are even endorsed by Dave Ramsey himself.

Have thoughts on this topic?  Leave a comment below.  We’d be glad to hear from you.