After you pay off your debt and fill up an emergency fund of cash, Dave Ramsey and many other suggest that you invest 15% of your income into retirement accounts (401k, IRA, etc.). I always forget, however, what counts as the 15%. Do you invest 15% of your salary (gross income) or 15% of your take home pay (net income)?
Chris Hogan, who writes and speaks for the Dave Ramsey organization about retirement, offers the best explanation on this article on his website: “Why You Need to Invest 15% of Your Income for Retirement.”
Should I invest 15% of my gross income or net income?
Dave Ramsey suggests investing 15% of your gross household income.
That means invest 15% of your income before paying taxes.
This makes a lot of sense especially if you plan to invest in pre-tax accounts like a Traditional IRA. (With the Roth IRA, you pay taxes right now and not when you take it out. With the Traditional IRA, you pay taxes when you take it out.)
Does my employer match count towards the 15% retirement investment?
No.
Invest 15% of your gross income into retirement and consider the employer match a bonus.
The biggest reason I can think of is that if your job situation changes and the percentage employee match changes or if you start working for yourself, then you will already be used to setting that money aside as an investment.
