Baby Step #4 - Save 15% for Retirement
After you have gotten out of debt (except for your home mortgage) and set aside a healthy emergency fund, it's time to think about your future. Dave Ramsey's Baby Step #4 is to save 15% of your total household income for retirement.
15% of your total household income means you and your spouse (if relevant). You don't each have to save 15% but the idea is that you're doing so as a total household. If you have retirement plans at work such as a 401(k) or a 403(b) these are a great place to start. You may also be able to set up IRA plans individually and contribute there. Each year the IRS changes the maximums that you may contribute to these plans (they increase).
Then there's the question of "Traditional" or "Roth" accounts. Traditional are the accounts that money is taken out of your paycheck pre-tax, meaning the full amount goes into your retirement account and you aren't taxed on the money until you actually withdraw it during your retirement years. With a Roth account, you don't save taxes up front (meaning you pay taxes the year you earn the money) but then the withdrawals in your retirement years are tax free. Also, the earnings from a Roth account are tax free which is the best part about them! These are important decisions and it's often helpful to sit down with a CPA or your tax adviser before making them.
The point here, no matter who puts how much away to reach your 15% goal, or whether you invest in Traditional or Roth accounts, is to SAVE FOR YOUR RETIREMENT...because no one is going to do it for you!