Your Guide to Building a Million-Dollar Retirement: The 15% Rule Explained

Planning for retirement in the US requires concrete numbers and a solid strategy. Financial expert Dave Ramsey has popularized a straightforward formula: allocate 15% of your gross income annually toward retirement accounts. But why this specific percentage, and how can you actually achieve it?

The Math Behind the 15% Target

Let’s break down the numbers. Using the median US household income of approximately $70,800, setting aside 15% translates to $10,620 yearly—or roughly $885 monthly. When you project this over three decades with an average return of 11%, you’re looking at a potential nest egg of $2.48 million. This isn’t just arbitrary advice; it’s a mathematically sound pathway to retiring as a millionaire for those willing to stay disciplined.

Two Prerequisites Before You Start Investing

Before diving into retirement accounts, Ramsey emphasizes completing two critical foundations. First, eliminate all outstanding debts. Second, build an emergency fund covering three to six months of living expenses. Only after addressing these financial cornerstones should you begin allocating that 15% toward long-term investments.

Step 1: Maximize Your Employer Match

If your workplace offers a retirement plan—whether it’s a 401(k), 403(b), or Thrift Savings Plan (TSP)—take full advantage of any employer match. This is essentially free money for your future. Many US employees can direct their entire 15% contribution through these workplace plans, particularly if Roth 401(k) or Roth 403(b) options are available. Even if you’re limited to traditional retirement plan options, this step forms a solid foundation.

Step 2: Fully Fund a Roth IRA

Once you’ve secured the employer match, the next move is to max out a Roth IRA. Annual contribution limits in 2024 are $7,000 for those under 50, and $8,000 for those 50 and older. The appeal of a Roth IRA lies in its tax-free growth potential—since contributions are made with after-tax dollars, your investment gains accumulate without future tax liability.

Step 3: Increase Your Workplace Contribution Until You Hit 15%

If you haven’t reached your 15% target after the previous two steps, return to your workplace retirement plan and gradually increase your contributions. The key is setting up automatic payroll deductions so that money flows directly from your paycheck to your retirement account, preventing the temptation to spend it elsewhere.

When raises or bonuses arrive, consider directing a percentage of that additional income straight into your retirement savings. This painless automation keeps you consistent without requiring willpower each month.

Making It Work Long-Term

The power of the 15% strategy lies in consistency and time. By committing to this percentage throughout your working years in the US, you’re not just saving—you’re leveraging compound returns and employer matches to build genuine wealth. The goal isn’t just retirement; it’s the security and freedom that comes with substantial retirement savings.