Determining % of Salary

[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?

 

[Alan]

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.

 

[amh031000]

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.

 

[Alan]

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.

 

[RunningBum]

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.

 

[amh031000]

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.

 

[braumeister]

sometimes I tend to over analyze and end up missing simple things.

Oh, you're going to fit in beautifully here.

 

[martyb]

I use gross for our 401's. I don't use anything for the Roths, since I contribute to them irregularly.

 

[obgyn65]

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

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?

 

[JoshTrent]

What about using a multiplier of ER Expenses? E.g. I saved 1.5 years of ER Expenses... (gross expenses of course)

 

[traineeinvestor]

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.

 

[Independent]

This is my first response:

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.

 

[ShortInSeattle]

I use gross. Percentage for savings, taxes, and expenses. Those are the three big buckets.


SIS

 

[growing_older]

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.

 

[Rustward]

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.

 

[Animorph]

I always use gross, saving 15% of salary. I've seen a few articles using gross for that pupose as well.

 

[iam21177]

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.

 

[devans0]

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.

 

[AndrewJackson]

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.

 

[W2R]

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?

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.

 

[EvrClrx311]

I contribute 6%, company matches 5%, company contributes 9.5% profit sharing. In years I don't go over the ROTH max, I'll put another $5,000 in there. So I'm at approximately 24-25% of my gross income.

 

[rodi]

I contribute 6%, company matches 5%, company contributes 9.5% profit sharing. In years I don't go over the ROTH max, I'll put another $5,000 in there. So I'm at approximately 24-25% of my gross income.

You count your company match and profit sharing as part of your saving?

I guess I look at that as something that they can take away from me - so I max out what *I* can save. (27% of gross). What the company provides is nice - but I have no control over it - and it can go away.

But then again - my employer of 18 years has
- changed the match percentage multiple times,
- eliminated the profit sharing contributions,
- froze the old defined benefit pension,
- then later froze the replacement defined contribution pension.
- Refined (reduced) the bonus formulas.
- Eliminated the stock purchase plan, etc.

And with another corporate merger/spinoff looming, I'm sure there will be more adjustments to the company provided portion of my retirement savings. I've been to this rodeo enough times to know that change is NEVER in the employee's favor.

 

[ERhoosier]

I use NET. That way I know my savings rate comparisons over years won't be terribly affected by changes in effective income tax rates. I aim for % savings, but it's % net income (i.e. $$ under my control).

That said, I think it is fair to count any VESTED employer retirement (401k) contributions (inc. matching funds) since it's now your $$ & it is being saved.