What is Your Savings Rate? - POLL

[FlowGirl]

Originally Posted by Laurence

For the purpose of this poll I selected 31%+ and included:

401k + matching
Roth IRA
Reduction in principle on mortgage (my only debt)

because all three directly benefit my FIRE chances.

Does everyone else include their 401k matching in their "savings rate"? My spouse gets no matching on his TSP, but his killer pension will be the key that allows us to retire very early. It would never occur to me include the pension value in our savings rate, but then unlike matching its not a guarantee until he actually retires.

I guess my main interest in the poll is to see how much sacrifice people are putting themselves through to achieve FIRE. Including mortgages, debt, and 401k matching doesn't really give me a feel for that, but then its not my poll.

[Cal]

Originally Posted by FlowGirl

Does everyone else include their 401k matching in their "savings rate"?* My spouse gets no matching on his TSP, but his killer pension will be the key that allows us to retire very early.* It would never occur to me include the pension value in our savings rate, but then unlike matching its not a guarantee until he actually retires.*

I guess my main interest in the poll is to see how much sacrifice people are putting themselves through to achieve FIRE. Including mortgages, debt, and 401k matching doesn't really give me a feel for that, but then its not my poll.

I didn't include the pension or the 401k match in my %. My 401k match is pretty small (but better than nothing) and who knows if my pension will be around when I retire. But, in both cases, even though it will help my retirement, it's not income that I could spend or do anything else with - in other words, the pension and 401k match are there whether I want them or not, whether I do anything or not. When discussing savings rate (especially when comparing myself to others) I always think of it as how well I am managing money that is WITHIN my control and will contribute to my retirement.

[laurence]

Originally Posted by azanon

If "I" was interested in how much you were saving for retirement Laurence, i'd kindly ask you to refigure it without the mortgage.

Well, what's critical is that one uses the same measuring tool each time one measures, but since you asked SO nicely, I think that takes it down to 25%


I include my 401k matching but not my pension. The reason for this is I consider it part of my compensation, and the cash spends just as well. My pension, well, who knows what it will be worth 35 years from now when I can collect it, too many variables there. I leave the company and it goes poof, but the match rolls into the IRA nicely.

[justin]

quote from Justin:

Financially, what is the difference between paying $15000 on a mortgage and buying $15000 worth of bonds at the same interest rate and maturity/payoff date as your mortgage?

Originally Posted by azanon

One pays you interest every month, and the other doesn't. One is immediately liquid and one isnt. One is meant specifically to fund something, and the other is meant to live in. I bet you can guess which is which.

Azanon,


Prepaying $15000 on my mortgage will reduce the amount I have to pay by about $50 monthly (adjustable rate mortgage). Instead of paying down the mortgage, I could buy $15000 of bonds, and get $50 monthly in interest. Which I would then have to use to pay down the mortgage. Financially, I would be in the same position each month if I paid down the mortgage, or if I bought the bonds.

Bonds may be immediately liquid, but the value fluctuates with changes in interest rates. My $15000 prepayment of the mortgage can also be immediately liquid - apply for a free no closing cost HELOC in the amount of $15000 - my newly created equity. Alternatively, I can refinance into a new ARM at the same market rates as my existing ARM and get at the $15000 that way. I concede the mortgage prepayment introduces some illiquidity.

"One is meant specifically to fund something, and the other is meant to live in."
This is a riddle to me. I don't live in my mortgage. Do you? I live in my house. It happens to secure payment of my mortgage note. The house and any debt secured by said house can be looked at as two separate entities.


I'm in agreement with you on your desire not to include the interest portion of mortgage payments. However, repayment of principal amounts of debt increases net worth, and in my opinion should be included in the definition of "savings" as Maddy did. Any amounts added to the principal balance of a debt should be subtracted from what you saved.

Lets look at the typical American living paycheck to paycheck on credit cards. He charges $1200/month for personal living expenses. This is $1200 spent because the principal balance on his credit card increases by $1200. Assuming he doesn't pay down this credit card, and then saves $1200 in his 401k, his net savings for the month would be zero. The $1200 of 401k contributions would be savings and the increase in the principal balance owed on the credit card ($1200) would offset the savings, making the net savings amount zero for the month.

When I say I'm counting payment toward debt principal as savings, I would also count new debt incurred as a reduction in savings. You may not like my system, but I think it makes sense if you count the debt you incur and the debt you repay. I also don't think it overstates your savings rate on a long term basis.

[cons]

i agree with azanon regarding his posts about not including your mortgage payment

i included only my retirement accounts:
-401(k)
-ROTH IRA
-taxable investment accounts

which put me in the 26-30 percent

[daystar]

I took the poll and apparently I'm a little slacker. I put in about 25% or so.

TSP - 15% + 5% Match
Roth IRA - $4000 per year (8%)

I don't keep close track of my cash flow. Some of the Roth IRA contribution might come from gift money so I'll say I contribute 25% of my money towards retirement.

[REWahoo]

Save? Who needs to save? According to a Money article, the average US household net worth has grown to over $400,000 while consumers are spending every penny they make and the national savings rate is zero. How? Real estate. "Bubble, bubble, toil and trouble..."

http://money.cnn.com/2005/08/02/news...ex.htm?cnn=yes

REW

[piranha]

I think this has been an interesting discussion, and I'm not 100% sure how I would classify my "savings rate"

If I simply factor in retirement accounts, our family "saving rate" would be around 31% of our gross income

If I include accounts designed for our children's educatoin, the rate becomes around 34% of our gross income.

If I include extra house principal payments that we make every month, the rate becomes around 38% of our gross income.

If I include all principal that comes off my existing loan per year, the rate becomes around 41% of our gross income.


My wife is not satisfied with this and wants to "save" more. I think she's crazy and constantly tell her to let us (and me for that matter... hey... I like to golf) live a little.

She constantly complains and worries about situations like...

"Well, we're going to need a car in 3-4 years"

or... and this one cracked me up today....

"What happens if our kids need braces?" Where are we going to get the $?"

Our children are 4 and 3 years old respectively.


We have an existing rainy day fund of around $25,000 (CD's/Money Market) and around $10,000 to pay the bills.


Talk about ridiculous. I just shake my head at her and bite my lip since trying to explain to her that we save more $ than probably 95% of the people in this country doesn't mater to her.... cuz... according to her "we can always save more!!!!!"

[dm]

I guess last year my savings rate was not that great. I did pay off the last 100k on my mortgage, but I guess that may not count as savings. I'll do better this year though without that pesty mortgage payment. Now if I could just get those kids out of school Id be doing great.

We put 24% in retirement accounts.
We also put about 20% in after tax accounts.

As I am retiring early I look at both accounts as being retirement accounts. The only difference is the tax breaks with the retirement accounts and rules about withdraws. The total is what I am concerned with.

[maddythebeagle]

From the newly posted article from money mag.-----The Commerce Department calculates the savings rate by taking the difference between after-tax income and all expenditures, including housing, food and clothing.

I guess that I used "gross income" in my question. I actually think that is a better indication because if you use a lot of tax deferred investments or savings, I think it is skewed otherwise.

I think subtracting out each year's mortgage principle that is paid down with your monthly payment might be something to consider, but I thought most people wouldnt have a firm idea of that or wouldnt want to check. Also, if it is a 30 year mortgage and you are on the first few years, it isnt significant and some would argue that is part of your "housing expense".

My main purpose of this poll was for everyone to use the same "metrics" so that Wanabes will then know what it takes. There is millions of ways to measure something, but if you dont compare apples to apples......