E
emailforian
We often hear percentages of income given as a guideline for
retiremement savings. For example, I have heard that you should save a
minimum of 10 percent of your income for retirement savings, and that
if you can save as much as 20 percent or more, you are really doing
well. But here is my question..... a percentage of WHAT?? Is it gross
income or net income? Does it include employer matching contributions
as income?
Let's use some hypothetical numbers to illustrate my question. Let's
say a person (or a couple) earns 100k per year, and they get a 5
percent match for their retirement plan (which they contribute to in
order to get the match), and their income taxes (including federal, SS,
medicare and state taxes) are 20k. (This may or may not be realistic
for some people, but let's just go with these hypothetical numbers for
sake of an example). Let's also assume that this hypothetical person
or couple saves 15k per year (which includes the 5k in employer
matching contributions).
Now, my question is......what percentage of income is this person or
couple saving? Is it 15 percent? (15k/100k gross income, excluding
match). Is it 14.28 percent? (15k/105k including the match as
income). Is it 18.75 percent? (15k/80k after tax income).
I know some of you will say, "what does it matter, so long as you are
saving enough to meet your goals, who cares what percentage it is."
That is a fair answer, and I already accept that as a valid point.
However, I am still curious to know what the standard or convention is
in terms of quoting percentage of income savings goals.
retiremement savings. For example, I have heard that you should save a
minimum of 10 percent of your income for retirement savings, and that
if you can save as much as 20 percent or more, you are really doing
well. But here is my question..... a percentage of WHAT?? Is it gross
income or net income? Does it include employer matching contributions
as income?
Let's use some hypothetical numbers to illustrate my question. Let's
say a person (or a couple) earns 100k per year, and they get a 5
percent match for their retirement plan (which they contribute to in
order to get the match), and their income taxes (including federal, SS,
medicare and state taxes) are 20k. (This may or may not be realistic
for some people, but let's just go with these hypothetical numbers for
sake of an example). Let's also assume that this hypothetical person
or couple saves 15k per year (which includes the 5k in employer
matching contributions).
Now, my question is......what percentage of income is this person or
couple saving? Is it 15 percent? (15k/100k gross income, excluding
match). Is it 14.28 percent? (15k/105k including the match as
income). Is it 18.75 percent? (15k/80k after tax income).
I know some of you will say, "what does it matter, so long as you are
saving enough to meet your goals, who cares what percentage it is."
That is a fair answer, and I already accept that as a valid point.
However, I am still curious to know what the standard or convention is
in terms of quoting percentage of income savings goals.