Dear Dave,  

I read where you recommend saving 15% of your income for retirement. Should I count my employer’s contribution to my retirement plan as part of that 15%?  

Carlotta  

Dear Carlotta,  

That’s a great question. Employer contributions do not count toward the 15 percent I recommend setting aside for retirement. It’s great if you work for a company that offers perks like that, but I want you putting 15 percent of your money into retirement. Whatever your company matches, whatever its pension may be, or even having a military retirement package, none of that enters the equation. I want your money in your name.  

Baby Step 4 of my plan says to put 15 percent of your income into retirement accounts. The first thing you should put money into is a matching retirement account. If you’ve got a 401(k), a Roth 401(k) or a 403(b) and your employer offers a match, you should do that up to the match before anything else.  

Let’s say your employer will match three percent. Since the goal is 15 percent, that still leaves you with some work to do. You’ve got three percent of your own money already going into retirement, so then you could look at a Roth IRA. If the Roth, plus what you invested previously to get the match doesn’t equal 15 percent, then you could look at a 403(b), or go back to your 401(k) to hit the 15 percent mark.  

And remember, if you’re going to reach your retirement goals, you can’t do it alone. King Solomon, one of the wisest men who ever lived, wrote: “Where there is no counsel, the people fall; But in the multitude of counselors there is safety” (Proverbs 11:14 NKJV). That’s why you need a quality financial advisor—one with the heart of a teacher—to help you navigate complicated financial issues, and guide you toward the kind of retirement you want.  

Do you see what I’m saying here, Carlotta? I want you—not the company you work for—to control your financial destiny. I want you to be able to retire with dignity, and enjoy life after working hard and saving. The responsibility for making that happens falls to you!  

—Dave  

 * Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of The Ramsey Show. He has appeared on Good Morning America, CBS This Morning, Today, Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.  

Dear Dave,  

My wife and I are both 36 years old, and we have two children. Our son is six, and our daughter will be four next month. We’ve been walking through the Baby Steps, and we should have our home paid off sometime next summer. We realized the other day the one thing missing from our financial picture is life insurance. We both work outside the home. She makes $60,000 a year, while I make $80,000 a year. At our age, and in our current situation, do you think we should we get 20-year or 30-year level term life insurance policies?  

Clay  

Dear Clay,  

You guys are doing a great job of getting control of your finances and planning for the future. Speaking of the future, do you plan on having more kids? If you do, you might want to go with 30-year policies. If you’ve decided two are enough, then based on your present situation I think 20-year policies would work out fine.  

I recommend folks have 10 to 12 times their annual income in life insurance coverage. That means you’d need between $800,000 and $960,000 in coverage, while your wife needs a policy in the $600,000 to $720,000 range. But let’s take a deeper dive into all this.  

Your kids will be in their mid-twenties in 20 years. Ideally, they both should have finished college by that time, or at the very least, be working and living on their own. If you continue to follow my plan, you and your wife will have paid off your home in a few months and be completely debt-free. And, you’ll have been saving 15% of your income for retirement over those 20 years. On average, that alone should give you more than a half-million dollars for retirement.  

Do you see where I’m going with this, Clay? Eventually, you two will become self-insured by getting out of debt, staying out of debt and piling up cash. So, if you’ve got $500,000 or more in a retirement fund, no debt and your children are grown and out of the house, even if you or your wife were to die unexpectedly at that point, the other would still be taken care of and in great shape financially.  

Keep up the good work!  

 —Dave  

 * Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of The Ramsey Show. He has appeared on Good Morning America, CBS This Morning, Today, Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.  

Dear Dave,  

I’m 67, and I’ve been wondering what your position is on preplanning for a funeral versus prepaying. Is one a better idea than the other, or should you do both?  

Shannon  

Dear Shannon,  

This is a great question. I wish more folks would think about these kinds of things ahead of time.  

Preplanning a funeral is truly a gift to your family. But if you prepay, it’s a gift to the funeral home. Doing the legwork and setting things up ahead of time so your family doesn’t have to make a lot of financial decisions in the middle of an emotional situation shows them respect and consideration.  

When you buy a prepaid plan, you could be years or decades away from needing it. Plus the inflation rate on funerals is about 4%, so in essence, you’d be making 4% on your money. And, of course, you’re locked into everything at that point. If you took the cost of a funeral and invested it at age 30, instead of 4% on your money, you’d get an actual investment return. By the time you’re 80, you’d have about $600,000. So prepaying in your 30s or 40s is mathematically ridiculous. Now, if you’re in your 60s, like you and me, there aren’t as many years for that money to grow. You wouldn’t see a huge return on investment, but it would still provide for a nice service.  

Believe it or not, it took me a while to figure out that the funeral world is an industry—an extremely profitable industry. And like with many things, when you add on stuff like financing or prepayment to a purchase, you’re adding to their profits. Most funeral providers make as much money on prepayment plans as they do in actual margin on the goods and services that go along with this kind of thing.  

That being said, I’ve got no problem with a business or industry making money. If they treat their customers well, no one’s taken advantage of, and a quality product or service is provided, it’s all good. But when it comes to funerals, I tell people to preplan. Don’t prepay.  

— Dave  

 * Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of “The Ramsey Show.” He has appeared on “Good Morning America,” “CBS This Morning,” “Today,” Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.  

Dear Dave,

I’m currently on Baby Step 2, and I have about $7,000 in debt to pay off before I can move to bulking up my emergency fund in Baby Step 3. When you’re paying off debt, what do you recommend for 401(k) contributions?

Rae

Dear Rae,

I recommend putting a temporary stop to investing while you’re getting out of debt. Lots of people are shocked by this advice, and some disagree with it, because they’re afraid of missing out on their employer’s match or the wonders of compound interest. But before we go any further, let me emphasize one thing. The key word here is temporary.

Baby Step 1 is to save $1,000 as a starter emergency fund. Baby Step 2 is paying off all of your debt, except for your home, from smallest to largest using the debt snowball plan. During this time you’re attacking your debt with incredible intensity, and putting every penny you can scrape together toward paying it off.

Working my plan, the average person can pay off all their debt, except for their home, in 18 to 24 months. Some folks can do it faster, and for some it takes a little longer. But during this time I want your financial focus to be on nothing but getting out of debt. Once that’s done, you’ll find you have a lot more control over your biggest wealth-building tool—your income.

Trying to accomplish too many things at once diminishes the ability to focus. And when you spend all your time nickel-and-diming everything, the result is that nothing at all gets done very well. You need to really move the needle and see results, because personal finance is 80 percent behavior and only 20 percent head knowledge. It’s not so much a math issue, because if you’d been doing the math all along you wouldn’t have a bunch of debt.

That’s why, for a short period of time, I want you to concentrate with laser intensity on knocking out debt. Once that’s out of the way, you can pour even more money into investing, saving and giving!

— Dave

* Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of The Ramsey Show. He has appeared on Good Morning America, CBS This Morning, Today, Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.