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Subject:  Re: What percentage of gross? Date:  1/5/2004  4:26 PM
Author:  WeeBeastie Number:  1703 of 5224

How much are you currently saving towards retirement, as a percentage of gross?

Hi Diana,
Glad you found our little corner of enthusiasm here on TMF. One thing I would caution with using percentages of gross is that they can be quite misleading. If savings are allowed to be gross (ie in a tax deferred plan), it is much easier to hit a higher target. This means the percentages that everyone quotes are not really comparable.

For example, let's say I make $50K and my employer matches the first 5% of my contributions to their 401(k). I contribute $2,500, or 5% before funding my Roth.

My Roth is $3,000, or 6% of my gross. I am unable to save more.

In total, I have saved 11% of my gross in retirement accounts.

However, if I forgo the Roth, I can save an additional $4,000 in my 401(k) instead of $3,000 thereby saving 13% of my gross income.

The effect on net income is negligible: the only difference is that I saved one amount pre-tax, the other post tax.

Also, you will notice here that some people include their employer matches in their calculations of what they saved; others don't. Neither method is right nor wrong.

There are plenty of other variables in people's lives too. One may have a 30 year mortgage, the other a 15 year. While extra principal payments on the latter aren't savings, they are a vehicle to increasing one's net worth.

So while these percentages and other stats can sometimes be useful, I wouldn't place much emphasis on them. I would hate for someone to feel discouraged because they thought they weren't hitting the mark, or for someone else to feel complacent because they thought they were ahead. The only person you can reliably compare to is yourself: how are you doing vs. how you did in the past?

Anyhow, I'm glad to see that you are able to move on from servicing debt to thinking about FIRE! Any increase in your percentage of gross contributed to retirement should be a great motivator and reward for you.


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