While many Americans worry about having enough money for retirement, financial expert Dave Ramsey believes the secret to a secure future starts with one simple but powerful idea: getting completely out of debt before you stop working.
Ramsey warns that even having $6 million saved won’t guarantee peace of mind if you’re still making mortgage and car payments in retirement. He argues that debt creates vulnerability and prevents true financial freedom. When unexpected medical bills or accidents happen, retirees with debt often find themselves in serious trouble quickly.
Even $6 million can’t buy peace of mind when debt payments still control your retirement budget.
This message particularly resonates with millennials who face unique financial challenges. Many are juggling student loans, rising housing costs, and stagnant wages while trying to save for retirement. Ramsey’s advice might seem impossible to follow, but he insists that paying off your mortgage before retirement matters more than taking advantage of low interest rates.
The debt-free approach connects directly to Ramsey’s other retirement strategies. He recommends investing 15% of gross income into mutual funds, IRAs, or 401(k) plans. Only about 52% of Americans have actually calculated how much they need to retire comfortably, which explains why so many feel unprepared.
Ramsey favors Roth 401(k) plans because they offer tax-free growth and tax-free withdrawals in retirement. Traditional 401(k) plans might seem appealing now, but those withdrawals get taxed as regular income later. Early withdrawals from any retirement account create penalties, taxes, and lost growth opportunities.
When it comes to spending retirement savings, Ramsey suggests withdrawal rates that might surprise people. While the traditional rule recommends taking out 4% annually, Ramsey discusses possibilities of 8% withdrawal rates. This higher rate increases income but also increases risk of running out of money.
For those who started planning late, Ramsey offers hope. It’s never too late to turn things around by returning to work, downsizing expenses, or delaying retirement. Those who retire before age 65 face the additional challenge of self-funding health care, which can become extremely costly without employer-provided insurance. Preparing for healthcare costs becomes even more critical when considering that couples retiring at 65 need approximately $413,000 for medical expenses throughout retirement. The key is starting positive financial actions immediately.
Even millennials with decades until retirement should remember that avoiding common mistakes like carrying debt, underestimating expenses, and inconsistent saving makes the difference between financial stress and true security.
