Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Calculating total retirement contributions
Old 03-13-2013, 04:59 PM   #1
Confused about dryer sheets
 
Join Date: Mar 2013
Posts: 2
Calculating total retirement contributions

When people talk about putting away 10, 15, 20.. percent of their total income into retirement - I'm getting confused calculating my own.

I make with bonus about $96k a year, with take home around 66k after taxes & 401k paid. I have 6% of my income routed to my company sponsored 401k to get the match (effectively matching 5%). I also am contributing the max $5500 to a Roth IRA.

To calculate 'my total percentage of income to retirement' I get that I add the 401k & match contributions to get 11%, but I am essentially taking $5500/$66000 (after tax/401k - takehome) to get 8.35% to get my Roth IRA contributions for a total 19.35% of income going to retirement. Is this accurate?

Sorry if I sound ignorant. I started my 401k last year and my Roth IRA this year and still learning.
__________________

__________________
RobertD is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-13-2013, 05:21 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
braumeister's Avatar
 
Join Date: Feb 2010
Location: Northern Kentucky
Posts: 8,601
$96,000 X 6% = $5,760 to 401(k)
$5,500 to Roth IRA
Total $11,260

$11,260 / $96,000 = 11.7% of total income

Don't forget, you'll still be paying taxes in retirement.
__________________

__________________
braumeister is offline   Reply With Quote
Old 03-13-2013, 05:26 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,974
You can calculate it any way you like and get different % results, but I think what Braumeister has shown is how most folks calculate it, self included.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 03-13-2013, 06:07 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Quote:
Originally Posted by braumeister View Post
$96,000 X 6% = $5,760 to 401(k)
$5,500 to Roth IRA
Total $11,260

$11,260 / $96,000 = 11.7% of total income

Don't forget, you'll still be paying taxes in retirement.
Another reasonable way would be to also add the employer's matching contribution to the 401k to both the retirement contribution and the salary.

But, as Midpack points out, there seem to be a lot of folks doing it the way braumeister demonstrated. The important thing is that the number you calculate is, on a relative scale, meaningful to you and gives you guidance in reaching your goal.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 03-13-2013, 06:22 PM   #5
Recycles dryer sheets
 
Join Date: Dec 2012
Posts: 78
I never added my employer contribution into my "personal" calculations until I was vested. If I didn't stay someplace long enough, the funds really weren't there. When I did, it was just a fabulous bonus! :P
__________________
BuysToys is offline   Reply With Quote
Old 03-13-2013, 06:24 PM   #6
Recycles dryer sheets
 
Join Date: May 2012
Posts: 99
BobDole,

Welcome to the board, and I always wondered what you made from the ED commercials.........

Welcome & Have Fun working to ER !!
__________________
Cessna5354 is offline   Reply With Quote
Old 03-13-2013, 06:35 PM   #7
Full time employment: Posting here.
 
Join Date: Apr 2009
Posts: 731
Quote:
Originally Posted by cessna5354 View Post
bobdole,

welcome to the board, and i always wondered what you made from the ed commercials.........
Too funny!
__________________
Retired July 2, 2010 at 62. My only regret is that I couldn't do it sooner.
thinker25 is offline   Reply With Quote
Old 03-13-2013, 06:38 PM   #8
Moderator
rodi's Avatar
 
Join Date: Apr 2012
Location: San Diego
Posts: 8,809
I've had the same questions - I see people counting the employer contribution in their percent of salary saved (numerator). But they aren't increasing their salaries (denominator) by the employer contributions... so it's kind of bad math.

Lets say you make $100k base salary.
Employer match is $10k.
You contribute 10% (10k)
10k/100k = 10%... straight forward.

Yes your 401k goes up 20k, not 10k, which is 20% of your salary but your remaining salary is only reduced by 10%.

So it's either count the 10% (and ignore the match except as a net worth "woo hoo".)
Or it's do the math as
Salary = 100k + 10k match. (110k)
Contributions are 10k + 10k match. (20k)
20k/110k = 18%

But folks don't typically do that.

I personally do the math with the things that I have control over... My salary, my 401k contributions. Company match is awesome, but it's not something *I* am saving.
__________________
rodi is offline   Reply With Quote
Old 03-13-2013, 06:43 PM   #9
Full time employment: Posting here.
 
Join Date: Jan 2013
Posts: 660
I've never enjoyed an employer match, so I don't know how I would do the math. My gut reaction is that the match should be included in both retirement savings and gross income. The main reason I can think of to leave it out completely is to avoid complacency - just because you're lucky enough to get a match doesn't mean you shouldn't also be trying to save as much as possible on your own.
__________________
karluk is offline   Reply With Quote
Old 03-13-2013, 06:57 PM   #10
Full time employment: Posting here.
Accidental Retiree's Avatar
 
Join Date: Feb 2012
Posts: 975
Quote:
Originally Posted by BuysToys View Post
I never added my employer contribution into my "personal" calculations until I was vested. If I didn't stay someplace long enough, the funds really weren't there. When I did, it was just a fabulous bonus! :P
+1
__________________
Chief Retirement Strategist
The AR Group
Accidental Retiree is offline   Reply With Quote
Old 03-13-2013, 06:59 PM   #11
Full time employment: Posting here.
 
Join Date: Nov 2010
Posts: 584
Percentage calculations are motivators for savings, but the other percentage realistically represents retirement spending. If I have a life that feels abundant in what is important to me, then I know my retirement 'number'.

What I go back and forth on how to treat Roths. I pay extra in taxes to max out my savings while I have it. This will be tax pre-payed money. Future taxable income is lowered, thus also making IRA and 401k money more valuable too. Future benefits will be tied into these taxable funds. That can affect social security tax rates, medicare rates, and possible benefit curtailing to those who "don't need it".
__________________
devans0 is offline   Reply With Quote
Old 03-14-2013, 02:25 AM   #12
Full time employment: Posting here.
Tyro's Avatar
 
Join Date: Aug 2012
Location: Upstate
Posts: 699
Quote:
Originally Posted by RobertD View Post
Sorry if I sound ignorant. I started my 401k last year and my Roth IRA this year and still learning.
Sorry if I sound ignorant, but we never calculated any kind of percentage. We always thought the idea was just to LBO(ur)M and sock away as much as we reasonably could, so that's what we did.

Tyro
__________________
Yeah well, that's just, ya know, like, your opinion, man. ~ The Dude
Tyro is offline   Reply With Quote
Old 03-14-2013, 08:26 AM   #13
Confused about dryer sheets
 
Join Date: Mar 2013
Posts: 2
Thanks for all the responses everyone! You've made me feel very welcome. My empolyer's 401k match is fairly generous - $1.00 for every dollar up to 4% and $0.50 for every dollar on the next 2%. I suppose that's simpler to just say 5% match on a 6% contribution as that's what I put in currently. I've been contributing to my 401k for a year and some change now.

I like the idea mentioned of adding the employer match to your gross income in addition to adding the match contribution % to your 'total retirement contribution percentage'. Do we have a acronym for that? TRCP? heh

I'm not sure I'm onboard with just taking the IRA contribution and dividing it by gross income to get that contribution percentage and adding it to the calculated 401k percentage. The comparison doesn't seem valid as the 401k is pretax and the Roth IRA is after tax. It makes the most sense to me 'convert my $5500 Roth contribution and convert it back to the pretax amount and then get the percentage by dividing the pretax Roth contribution by gross income.

Maybe I'm just trying to make this to complicated and it really isn't that important...
__________________
RobertD is offline   Reply With Quote
Old 03-14-2013, 08:43 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
braumeister's Avatar
 
Join Date: Feb 2010
Location: Northern Kentucky
Posts: 8,601
Quote:
Originally Posted by RobertD View Post
Maybe I'm just trying to make this to complicated and it really isn't that important...
That depends on how many decimal points you want in your percentage calculation.

No worries; you're on the right track.
__________________
braumeister is offline   Reply With Quote
Old 03-14-2013, 08:58 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,266
Quote:
Originally Posted by Tyro View Post
... we never calculated any kind of percentage. We always thought the idea was just to LBO(ur)M and sock away as much as we reasonably could, so that's what we did.

Tyro
Agreed.

Quote:
Originally Posted by RobertD View Post

Maybe I'm just trying to make this to complicated and it really isn't that important...
Yes, I think you are (making it complicated), and it isn't (important). Regardless how you calculate it, it is just a number. So if one calc gives you X.xx% and another calc gives you Y.yy% - it doesn't affect your retirement plans, it doesn't drive any action. It is the amount that will feed your future plans.

Focus on what is important is what I suggest.

-ERD50
__________________
ERD50 is online now   Reply With Quote
Old 03-14-2013, 09:05 AM   #16
Recycles dryer sheets
 
Join Date: Jan 2005
Posts: 486
Quote:
Originally Posted by RobertD View Post
Maybe I'm just trying to make this to complicated and it really isn't that important...
It's really not important - the % you save. A 21 year old saving 10% per year will retire with more money than a 40 year old who just started saving 10% per year (all things being the same, of course).

Try solving the equation backwards -----> What age would I like to retire? How much money will I need per year? How much money is required to draw X amount per year and at what withdrawal rate (2%, 3%, 4%, etc)?

Or seal all the leaks in your budget and just save "the rest". I think that's what most people here do.
__________________
tinlizzy is offline   Reply With Quote
Old 03-14-2013, 09:16 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,974
Quote:
Originally Posted by RobertD View Post
Maybe I'm just trying to make this to complicated and it really isn't that important...
Like others, I think you may be making it unnecessarily complicated, but what's your ultimate purpose?

Maybe ask yourself, if you get X% (braumeister & many others simple method) or Y% (your proposed tax adjusted and/or 401k match method) - what would that difference cause you to do? Would it change your contribution somehow? If not...maybe it's not important.

I was always focused on how much I needed to save each paycheck/month/year to reach my FI goal. I never even calculated what percent of my income it was, until I started reading about it here and other places. % of income was not a goal in itself IMHO, and it would have varied each year anyway. YMMV
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 03-14-2013, 09:39 AM   #18
Thinks s/he gets paid by the post
Rambler's Avatar
 
Join Date: Jul 2007
Posts: 2,247
I would say to focus on a more important equation:

($x per year) x (how many years) = (what I need),

And:

(What I need) = (how much I plan to spend)/(my personally comfortable SWR)

Good luck

R
__________________

__________________
Find Joy in the Journey...
Rambler is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 04:52 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.