Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Determining % of Salary
Old 01-15-2013, 03:47 PM   #1
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Plano
Posts: 12
Determining % of Salary

This might be a silly question, but when calculating what percentage of salary you are saving do you use gross or net earnings as your denominator?
__________________

__________________
amh031000 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 01-15-2013, 04:08 PM   #2
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,100
Quote:
Originally Posted by amh031000 View Post
This might be a silly question, but when calculating what percentage of salary you are saving do you use gross or net earnings as your denominator?
For simplicity I used to use gross. The first 20% or more was taken from gross before tax into 401k, and then additional savings, if any, came out of the net but the bulk of savings was always taken from gross before tax.

However, I'm sure you'll see plenty of responses saying they calculate it on net income.
__________________

__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 01-15-2013, 04:11 PM   #3
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Plano
Posts: 12
In my case all of my current saving is done in Roth or other after-tax vehicles so I figured I should use net, but wasn't sure how I should approach it as my savings become a blend of both pre and post tax.
__________________
amh031000 is offline   Reply With Quote
Old 01-15-2013, 04:15 PM   #4
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,100
Quote:
Originally Posted by amh031000 View Post
In my case all of my current saving is done in Roth or other after-tax vehicles so I figured I should use net, but wasn't sure. Thanks.
I really don't think it matters. When you use financial planning calculators they won't tell you how much extra to save as a % of income to meet your stated goal, they will tell you how many $/yr that you need to save each year.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 01-15-2013, 04:25 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,182
How would you use this %, whether it is net or gross? The only time I looked at this was to figure out what % of my salary to deduct for my 401K, and that was really just to try to even it out over the full year and still max it out. I always maxed by ESPP at the full 10%. Those deductions are from gross salary. Other than that, when I was working full time I auto-invested some amount with Vanguard, but that wasn't based on any % of income, but rather what I could afford in my budget. I also invested most of my windfalls from bonuses.

If you're looking at some guidelines that you should save x% of your income so that you can live at y% of income in retirement, you can do better than those guidelines. In the early years I'd say just sock away as much as you can and focus on a LBYM lifestyle. As you get older you can better estimate what retirement income you'll actually need, and be able to set a nest egg goal based on a safe withdrawal weight and save towards that goal.

If you're just keeping score, whatever you want to do is your business. If you want to compare to others, I'd guess most use gross, but I always figured it'd be better to worry about myself rather than what others are doing.
__________________
RunningBum is offline   Reply With Quote
Old 01-15-2013, 04:36 PM   #6
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Plano
Posts: 12
I'd be using it just for my own purposes to compare year over year. Just wondered if there was a standard way people calculated it that I was oblivious to; sometimes I tend to over analyze and end up missing simple things.
__________________
amh031000 is offline   Reply With Quote
Old 01-15-2013, 05:18 PM   #7
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 amh031000 View Post
sometimes I tend to over analyze and end up missing simple things.
Oh, you're going to fit in beautifully here.
__________________
braumeister is offline   Reply With Quote
Old 01-15-2013, 05:18 PM   #8
Thinks s/he gets paid by the post
martyb's Avatar
 
Join Date: Nov 2006
Location: Bossier City
Posts: 2,182
I use gross for our 401's. I don't use anything for the Roths, since I contribute to them irregularly.
__________________
“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
-John F. Kennedy

“Hard work never killed anybody, but why take a chance?” - Edgar Bergen
martyb is offline   Reply With Quote
Old 01-15-2013, 06:24 PM   #9
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
It depends, and I have tried it both ways. I mentioned in another recent thread what my saving rate was, and I was shot down in flames (again) :-) I was told that my result was implausible - so trying with net or gross would have had the same actual result :-)
Quote:
Originally Posted by amh031000
This might be a silly question, but when calculating what percentage of salary you are saving do you use gross or net earnings as your denominator?
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 01-15-2013, 07:35 PM   #10
Dryer sheet aficionado
 
Join Date: Mar 2011
Posts: 37
What about using a multiplier of ER Expenses? E.g. I saved 1.5 years of ER Expenses... (gross expenses of course)
__________________
WWJCD - What would Jeremy Clarkson Do?
JoshTrent is offline   Reply With Quote
Old 01-15-2013, 07:47 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,574
I use gross.

I don't have the same tax issues that many face, and the main reason for doing the calculation is motivational. Gross produces a lower percentage number than net which works better for me.
__________________
Budgeting is a skill practised by people who are bad at politics.
traineeinvestor is offline   Reply With Quote
Old 01-15-2013, 08:04 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
This is my first response:
Quote:
Originally Posted by Alan View Post
I really don't think it matters. When you use financial planning calculators they won't tell you how much extra to save as a % of income to meet your stated goal, they will tell you how many $/yr that you need to save each year.
If I did a number "just for curiosity" I used gross. That's because all my serious retirement saving was in a traditional 401k. I knew I was putting before tax dollars in, but I would have to pay taxes on the money coming out.
__________________
Independent is offline   Reply With Quote
Old 01-16-2013, 12:11 AM   #13
Full time employment: Posting here.
ShortInSeattle's Avatar
 
Join Date: Jan 2012
Location: Seattle
Posts: 517
I use gross. Percentage for savings, taxes, and expenses. Those are the three big buckets.


SIS
__________________
ShortInSeattle is offline   Reply With Quote
Old 01-16-2013, 12:30 AM   #14
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
I use gross. I figured paying extra taxes shouldn't make my savings rate go up when I am saving the same amount out of the same total salary.
__________________
growing_older is offline   Reply With Quote
Old 01-16-2013, 10:06 AM   #15
Thinks s/he gets paid by the post
Rustward's Avatar
 
Join Date: Apr 2006
Posts: 1,572
This is going to sound out of place here. I do quite a lot of "figuring" with our numbers, and . . . in our ~72 years of combined employment I cannot recall one instance of ever wondering what percentage of salary we saved in any given time frame.

We always maximized deferred comp, used employee savings programs when they were offered, made contributions to traditional and Roth IRAs when appropriate, bought everything we needed, and only what we needed, and saved the rest in after-tax accounts.
__________________
Rustward is offline   Reply With Quote
Old 01-16-2013, 10:32 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
I always use gross, saving 15% of salary. I've seen a few articles using gross for that pupose as well.
__________________
Animorph is offline   Reply With Quote
Old 01-16-2013, 10:36 AM   #17
Recycles dryer sheets
iam21177's Avatar
 
Join Date: May 2011
Posts: 159
I use gross. We save 38% of our gross, and both of our works throw in another 14.2% on top of that as part of our benefits.
__________________
iam21177 is offline   Reply With Quote
Old 01-16-2013, 11:05 AM   #18
Full time employment: Posting here.
 
Join Date: Nov 2010
Posts: 588
I use gross. Roth 401K caps at ($17500 + $5500)= $23000.
I divide this by 50 weeks to enjoy a small boost for end of year or fudge factor for a small health issue.

After paying taxes, there isn't too much left, but I am near the finish line of the rat race.
__________________
devans0 is offline   Reply With Quote
Old 01-16-2013, 09:48 PM   #19
Recycles dryer sheets
 
Join Date: Jan 2013
Posts: 118
I use net income to make myself feel better. My blood pressure goes way up when I realize how much the mafia thugs in chicago/springfield/dc are taking from my paycheck.
__________________
AndrewJackson is offline   Reply With Quote
Old 01-17-2013, 02:19 AM   #20
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,887
Quote:
Originally Posted by amh031000 View Post
This might be a silly question, but when calculating what percentage of salary you are saving do you use gross or net earnings as your denominator?
Quote:
Originally Posted by amh031000 View Post
I'd be using it just for my own purposes to compare year over year.
Oh, OK!!

When I wanted a number just for my own purposes to compare year over year, I compared DOLLARS spent and saved, not percent of salary.
__________________

__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   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 07:11 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.