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Dave Says: Your Retirement Goal

Dave Ramsey – These days it pays to be smart about money. That's why it's important to take this wise counsel from financial expert Dave Ramsey.

What’s a good retirement goal

Dear Dave,

Do you recommend that people have a certain goal percentage or dollar amount saved for retirement?


Dear Faith,

Well, life doesn’t generally happen in linear fashion. In my opinion, your overall goal—closely and constantly adjusted and monitored—should go something like this: Build a nest egg that you can live off about eight percent of. If you have $500,000 stashed away, then that would mean about $40,000 a year. If you’d rather live on $80,000 a year at retirement, you’d need $1 million. Otherwise, you’re liable to start counting on the government. And we all know how well they handle money…

Want to know where I got this figure? Throughout the history of the stock market, the Standard & Poor 500 has averaged between 11 and 12 percent. Some folks don’t think it will average that in the future, but they didn’t think it would when it was booming, either.

But, if inflation runs about three or four percent, and you’re making 11 to 12 percent, you can pull out eight percent, and you’re still leaving enough in there to give yourself an inflation raise every year and not touch your nest egg.


No option but education

Dear Dave,

I hear you talk about using an ESA when it comes to funding college for your kids. What can you do with an ESA, though, if your child decides he or she doesn’t want to go to college?


Dear Anonymous,

If something like that happens, you’re going to get killed on the investment. An Education Savings Account (ESA) can only be used for education. If you use it for anything else, you’ll get hit with a 15 percent penalty plus your tax rate. The government’s going to take about half of your money and maybe more.

Now, college is a great idea, but should everyone go to college? Of course not. Some people just aren’t cut out for college, and some kids don’t need four years at a university to find the training they need to do what they want to do in life. In our house, we just talked about college as if it were going to happen from the very beginning. We said things all the time like, “This money is going into your college fund.” An ESA makes perfect sense in this kind of situation, but if the entire family isn’t committed to the importance of getting an education, then you shouldn’t be loading up an ESA.

But hey, if a kid doesn’t want to go the traditional college route, there’s always specialized training in several fields and plenty of vo-tech schools around. An ESA can be used for lots of these kinds of things, too, as long as the school participates in the federal student aid program.

I don’t have a problem with any of that, as long as there’s a plan. But letting a kid get the idea that they’re just going to party and lie around while mom and dad hand half of that ESA over to Uncle Sam? Really?

I don’t think so!


* For more financial help, please visit

Dave SaysDave Ramsey is a nationally-syndicated radio talk show host and author of the New York Times bestselling books, Financial Peace Revisited and The Total Money Makeover. His life-changing advice in the area of personal finance helps people get out of debt, stay out of debt and build wealth that will last a lifetime and beyond.

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