‘I'm embarrassed to ask this question': This 50-year-old Illinois widow says she put her kids through college — but now has nothing saved for retirement. Here's what Dave Ramsey told her

Step 1 - Invest $1,000 a month

Jodi’s lack of debt allows her to put a large proportion of her income toward savings. Ramsey recommends she set aside $1,000 a month to save for retirement, starting right away. That implies a savings rate of 33% on after-tax income.

A double-digit savings rate is nearly impossible for most Americans. The U.S. personal savings rate was just 3.4% in September 2023, according to the Bureau of Economic Analysis. But Jodi has the advantage of being an empty nester with no consumer debt and no mortgage. Saving a third of her income is feasible.

More: 8 best ways to invest $1,000

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Step 2 - Deploy funds in a Roth IRA

Ramsey recommended a Roth IRA for Jodi’s monthly savings. This popular individual retirement account enables tax-free growth. Account holders who have held funds in this vehicle for more than five years can start withdrawing cash tax-free at 59 and a half years old.

Ramsey had a longer time horizon in mind for Jodi. He told her that if she maintains the $1,000-a-month contributions for 15 years, she’ll have $500,000 in her Roth IRA at 65.

Step 3 - Focus on investing in mutual funds

The final step is to focus on stocks and mutual funds. Ramsey says his personal mutual fund investments have averaged 12% annually. Meanwhile, the S&P 500 has averaged 10.7% per year since 1957, per Insider. So a double-digit annualized return is certainly possible.

Ramsey estimated that 10% compounded annual growth, having already turned Jodi’s monthly $1,000 contributions into half a million dollars, could yield more annual retirement income from capital gains than Jodi’s current $36,000 income, enabling a stress-free retirement.

To be fair, past performance is no indication of future returns. The S&P 500 has had some decades with flat or negative returns in the past. Another “lost decade” for stocks cannot be ruled out. Nevertheless, saving $1,000 a month would put Jodi in a much better financial position even without capital gains along the way.

Simply put, it’s never too late or too difficult to secure your retirement.