please clarify saving 15% for retirement

[The J]

It depends. Personally, I save 20% for retirement. I do include the 3% mandatory contribution to my pension, so the other 17% goes into my deferred comp.

[schildi]

I would not include these extra contributions if you base your contributions on 15%.
We currently save 25-30% of gross into retirement accounts. It's better to err on the high side here, imo. :-)

[Deleted]

I would include nonelective contributions as part of your retirement savings. It is your money, and it is being put towards retirement.

[Deleted]

Feb 23, 2011 11:48:26 GMT -5 ArchietheDragon said:

I would include nonelective contributions as part of your retirement savings. It is your money, and it is being put towards retirement.

What he said

[The J]

Feb 23, 2011 11:38:23 GMT -5 schildi said:

I would not include these extra contributions if you base your contributions on 15%.
We currently save 25-30% of gross into retirement accounts. It's better to err on the high side here, imo. :-)

But it depends on the set up. Right now, if I were to leave my job, the money I contributed to my pension (not my employer contributions), plus interest, would leave with me. Once I hit the point where I can't take that money (10 years of service), I don't have to contribute anymore.

[ca]

I count the matching as part of my % of income, but I also include that match in my annual income to get the percentages I need to contribute. Does that make sense?

So if I make $100k, and I get a 7% match (I do), then I say I make $107k and base my % contirbution on $107k of income rather than $100k.

[kdamron]

We have a 3% safe harbor, and yes I count it as part of my retirement savings percentage, but I only started counting it after I was fully vested.

[dancinmama]

I think these percentages that are recommended for retirement savings are too arbitrary. There are sooo many factors when planning for retirement and deciding how much to save.

Will you be receiving a pension?
DH works for a Fortune 500 company and anyone that hired on after 2006 will not be receiving a defined benefit package.

At what age do you plan to retire and how long do you expect to live?

Are you including SS in your retirement calculations; how about Medicare?
That's risky, so how are you going to pay for health care in retirement?

How do you want to live in retirement - basic sustenance or do you want to be able to do the things that you have not had the time to do during your working years?

Depending on these factors, I think that 15% is probably the MINIMAL amount that people should be saving - even if they expect to receive a pension.

[cronewitch]

I would count it any way you want. Since you haven't started yet and are an adult you are behind so if you were say 28 and starting at 15% you have lost all the time between 18-28 so will need more than if you started sooner.

I didn't start until 35 and then slowly so now at 61, I am saving about 36K out of 55K gross wages. Save as much as you can so you don't have to catch up when you are older.

[hsclassic]

I don't count the (meager) contributions made by our employers. We focus on maximizing 401k and Roth IRA contributions, plus also have regular (pay ourselves first) contributions to HSA and taxable savings. (approx 30% of gross)

This is in addition to living off 1 net income as we are aggressively saving for early retirement.

[sapphire12]

I contribute 15% of my gross pay to my TSP. This does not include the match, nor what I contribute to my pension.

[Deleted]

Feb 23, 2011 19:53:39 GMT -5 family legacy said:

Thanks for the responses. What if you only had 20% of your income as disposable? Would you still put 15% into retirement and the rest for other things (college, EF, long-term savings, etc) or 10% to retirement and 10% to other things until more money became available? In a few years we'll be done with daycare which will add another 9% in disposable income which will make all the difference in the world...not to mention any raises along the way.

I think it is a personal decision. The suggested route is usually:
-> contribute to retirement account up to company match (get that free money)
-> max Roth IRA and money away In EF
-> then go back and max your employer fund

but for us we went at it differently since we are DINKS (Dual Income and No kids) :
-> currently contributing 20% to 401K (25% next raise for each of us)
-> 1k-3K to our Roth IRA
-> about 100-500 to EF depending on bills for that month (some of our bills are flexible, so some month we might save more than others).

Like I said, every situation is different. For us we want to to decrease our taxable income and another factor is we want to get used to living on less now before we have kids/mortgage etc.

Again, it is all about your comfort zone and your goals.

[cronewitch]

Saving for retirement in a retirement plan is the normal way to prepare for retirement but not the only way. Any method that increases your net worth works too.

Each person will decide for him/herself what works best. Buying a first home, buying rentals, building a business all work to prepare yourself. Just buying a first home is a major retirement move, if you did nothing else but pay for a house in 30 years you don't have the principal and interest to pay. Long before that owning will become cheaper than renting so you can save more if you don't overbuy.

If you owned a home and 3 rentals you would have about enough to finance a low cost retirement and if you managed to hold on 30 years you could sell them and pocket the proceeds or own them outright and have no rent plus 3 rent payments coming in. If a rent payment equals 25% of an income you are all set. Own 5-6 rentals and you would be doing great even with modest mortgages.

[The J]

Feb 23, 2011 19:53:39 GMT -5 family legacy said:

Thanks for the responses. What if you only had 20% of your income as disposable? Would you still put 15% into retirement and the rest for other things (college, EF, long-term savings, etc) or 10% to retirement and 10% to other things until more money became available? In a few years we'll be done with daycare which will add another 9% in disposable income which will make all the difference in the world...not to mention any raises along the way.

This is a mindset you have to get out of. Retirement savings are not done with disposable income. They're done FIRST, before anything else. Disposable income is what is left after savings/investments and fixed expenses.

[ca]

My retirement fund manager (Sunlife) in Canada sends us a big pack at year end and it actually tells us based on the information it has (age, non-smoker/smoker, income, etc.) if it believes we are saving enough for retirement or not. I wonder what the algorythm is?

[hsclassic]

The J is absolutely right about disposable income. Reitrement savings (at least not 401k type savings) are not done with disposable income. And, in our budget, Roth IRA retirement is a line-item as an expense, not done with disposable income.

(True) Disposable income goes to other savings for whatever your goals are - rentals, vacations, home, car, etc.