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Retirement Savings Rate Basic Question

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  • Avatar PedsCCM 
    Participant
    Status: Physician
    Posts: 3
    Joined: 07/30/2019

    Sorry, this is incredibly basic, but I can’t seem to find the answer. When talking about retirement savings rate (20% etc), how does matching fit into the calculation? Do most folks include that as part of the savings and as part of their income? Or ignore the match altogether? Or something else? Thanks!

    #239760 Reply
    Avatar SLC OB 
    Participant
    Status: Physician
    Posts: 565
    Joined: 06/23/2018

    I try to just use my own savings rate, not including the match, so the match is gravy on top!

    However, I will also use extra principle only payments to mortgage too, in my overall savings rate, just not my “retirement” savings rate.

    #239763 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3517
    Joined: 01/14/2017

    Don’t focus on savings rate. The inputs to financial equations don’t depend on it. Amounts, however, are very important.

    #239772 Reply
    Avatar wa2106 
    Participant
    Status: Physician
    Posts: 185
    Joined: 11/29/2017

    Not incredibly basic – people here will debate to the ends of the earth about how to calculate savings rate.  Only thing that matters is doing it consistently.

    If you want to include match (I do), then use:

    (retirement savings + match) / (salary + match)

    #239781 Reply
    Liked by Hank, Tim, JBME, Lordosis, Peds
    Avatar loeffy 
    Participant
    Status: Physician
    Posts: 61
    Joined: 08/28/2016

    I too look at amounts, not percentages.  Actually, I don’t even think about savings amounts so much as spending amounts, minimizing them and just saving the rest.

    #239784 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3517
    Joined: 01/14/2017
    Actually, I don’t even think about savings amounts so much as spending amounts, minimizing them and just saving the rest.

    Click to expand…

    I think you can adopt this strategy if you know the byproduct of these efforts will necessarily yield a savings amount per month that will produce success.  But unless you are tracking your actual savings in dollar terms you won’t know if you are on track to meeting your financial goals.  One might say, “Well I’m doing the best I can do and that’s all that matters.”  I would disagree.  First, you can always do more (save more, earn more).  But more importantly than that, you need to know if you are hitting your milestones for goal achievement and, if not, then plan accordingly.  So it’s more for planning purposes that I would advocate for tracking your savings (in dollars) vs tracking your spending or savings rate.

    #239786 Reply
    Liked by MaxPower, Lordosis
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1860
    Joined: 02/11/2019

    20% is a good ballpark amount.  If you are at 19% you will likely not be eating cat food in retirement.  However you might be in trouble if it is 5%

    Physicians tend to get a late start and have mega loans so that is why the 10-15% standard advice is too low for us.

     

    My match is rather small. ~7500.  I count it but it does not move the needle much.  I do not count the silly stuff like mortgage principal, 529 contributions, saving for a car/house/vacation, etc.

    “Never let your sense of morals prevent you from doing what is right.”

    #239789 Reply
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 531
    Joined: 03/26/2018

    We take all of our income before any deductions (benefits, taxes, etc). To that we add the money that is matched. That’s our denominator. The numerator is the dollar amounts that go into any accounts that are designated for retirement, so that includes the match. Do the division and get at least .20.

    #239838 Reply
    Liked by AZPT, ZZZ
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4442
    Joined: 01/08/2016

    how does matching fit into the calculation?

    Click to expand…

    it goes into retirement accounts. therefore it is counted. its also part of your compensation. therefore it is counted.

    Do most folks include that as part of the savings and as part of their income?

    Click to expand…

    if they have a match they should.

    Or ignore the match altogether?

    Click to expand…

    why would you ignore income?

     

    so what other people may or may not say.

    #239845 Reply
    Liked by Craigy, wa2106
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3071
    Joined: 09/18/2018

    Peds clarified this for me, regarding the computation but I add an additional computation and a test.

    Gross income – taxes – retirement savings = spending

    (Retirement savings + employer contributions ) /
    Gross income + employer contributions = retirement %.

    Now the hard part, is it enough? That is a long time with many assumptions. I run the retirement planners and see how much spending in retirement this will support (considering taxes).

    The only controllable is changing the spending if you don’t like the projections. You are looking at rules of thumb, percentages and amounts. Follow your own definitions consistently. Definitions only serve for communicating, they don’t change the results.

    20% plus seems to be the consensus. Too many unknowns for precision.

    #239865 Reply
    Avatar Antares 
    Participant
    Status: Physician
    Posts: 507
    Joined: 01/20/2016

    Peds clarified this for me, regarding the computation but I add an additional computation and a test.

    Gross income – taxes – retirement savings = spending

    (Retirement savings + employer contributions ) /
    Gross income + employer contributions = retirement %.

    Now the hard part, is it enough? That is a long time with many assumptions. I run the retirement planners and see how much spending in retirement this will support (considering taxes).

    The only controllable is changing the spending if you don’t like the projections. You are looking at rules of thumb, percentages and amounts. Follow your own definitions consistently. Definitions only serve for communicating, they don’t change the results.

    20% plus seems to be the consensus. Too many unknowns for precision.

    Click to expand…

    About not liking the projections: I doubt this is counter to your cogent summary Tim, but I say it (to myself) this way: I can control the savings rate (in the 30s for me) and how to invest, but I can’t control the outcome. If I don’t like the outcome (ie the amount of spending the portfolio will support as I (now) near retirement, I can choose to work longer or alter what I’m willing to have available to spend. At some point, it will just need to stop, and I’ll need to accept what I’ve got. My long range plan does not involve earning other than passively, and the many long range possibilities appear to be converging.

    #239875 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3071
    Joined: 09/18/2018

    @antares,
    Considering your knowledge of behavioral impacts, I by no means attempt to go beyond “not liking”. My comment was simply the math. There seemed to be two camps. One favoring savings rate and the other on the amount. Both start as plans and eventually become reality as you point out. Just tell me how to relax please.
    I wonder if you won’t eventually keep your hand in the game on a reduced basis in your “retirement” location, just because .

    #239914 Reply

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