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Retirement Discussions / FIRE Wannabees
|Subject: Re: What percentage of gross?||Date: 1/5/2004 4:26 PM|
|Author: WeeBeastie||Number: 1703 of 5089|
How much are you currently saving towards retirement, as a percentage of gross?
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 saving