Dave Ramsey often cites 12% based on S&P 500 historical averages.
Your Retirement Outlook
Estimated Total at Age
Monthly Contribution
Potential Monthly Income
(4% Rule applied)
How the Dave Ramsey 401k Strategy Works
If you're following the Dave Ramsey Baby Steps, you know that Baby Step 4 is where the real wealth building begins. Once you are debt-free (except for the house) and have a fully-funded emergency fund, it's time to invest 15% of your household income into retirement.
The 15% Rule
Dave Ramsey recommends a strict 15% rule for a reason. This amount is high enough to build a substantial nest egg over 25–30 years, but low enough that you still have margin to pay off your home early (Baby Step 6) and fund your children's college (Baby Step 5). Note that Dave suggests 15% of your gross income, regardless of whether your employer offers a match.
Understanding the 12% Return
While most financial planners suggest using a conservative 7% or 8% growth rate, Dave Ramsey often points to the 100-year historical average of the S&P 500, which is approximately 11.8%. Using this calculator, you can adjust the rate to see how various market conditions affect your 401k balance. By investing in growth stock mutual funds with a long-term track record, you aim to capture that market performance.
Calculation Example
Let's look at a realistic scenario for a typical household:
Annual Income: $70,000
Monthly Investment (15%): $875
Current Balance: $5,000
Time Frame: 30 years
Expected Return: 10%
In this example, after 30 years, the household would have approximately $2,074,000. This demonstrates the "compound interest" curve that Dave frequently discusses—the "hockey stick" growth that happens in the final decade of investing.
Where to Invest Your 401k?
Ramsey recommends splitting your investments across four types of mutual funds (25% each):
Growth: Mid-cap companies.
Growth and Income: Large-cap, stable companies (Blue Chip).
Aggressive Growth: Small-cap companies with high potential.
International: Companies based outside of your home country.
function calculateRamsey401k() {
var annualIncome = parseFloat(document.getElementById('annualIncome').value);
var currentBalance = parseFloat(document.getElementById('currentBalance').value);
var contributionPct = parseFloat(document.getElementById('contributionPct').value) / 100;
var matchPct = parseFloat(document.getElementById('matchPct').value) / 100;
var currentAge = parseInt(document.getElementById('currentAge').value);
var retirementAge = parseInt(document.getElementById('retirementAge').value);
var annualReturn = parseFloat(document.getElementById('annualReturn').value) / 100;
if (isNaN(annualIncome) || isNaN(currentAge) || isNaN(retirementAge) || retirementAge <= currentAge) {
alert("Please enter valid numbers and ensure retirement age is greater than current age.");
return;
}
var months = (retirementAge – currentAge) * 12;
var monthlyRate = annualReturn / 12;
var monthlyContribution = (annualIncome * contributionPct) / 12;
var monthlyMatch = (annualIncome * matchPct) / 12;
var totalMonthlyIn = monthlyContribution + monthlyMatch;
var balance = currentBalance;
for (var i = 0; i < months; i++) {
balance = (balance + totalMonthlyIn) * (1 + monthlyRate);
}
// Standard 4% withdrawal rule for monthly income
var annualRetirementIncome = balance * 0.04;
var monthlyRetirementIncome = annualRetirementIncome / 12;
document.getElementById('resAge').innerText = retirementAge;
document.getElementById('totalBalance').innerText = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD', maximumFractionDigits: 0 }).format(balance);
document.getElementById('resMonthlyContrib').innerText = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD' }).format(totalMonthlyIn);
document.getElementById('resMonthlyIncome').innerText = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD', maximumFractionDigits: 0 }).format(monthlyRetirementIncome) + "/mo";
document.getElementById('ramseyResult').style.display = 'block';
document.getElementById('ramseyResult').scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}