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Should I be saving 20% including the employer match?

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  • Should I be saving 20% including the employer match?

    So when I look at my savings rate, I am trying to get above 20% of my gross income. Should this amount include whatever my employer puts in as a match? Or should I try to get 20% myself and consider the match as a "bonus". My employer match and contributions ends up being about 8% or so. Which means I only have to put in about 12% to total 20%.  My thought is that I will try to get up to 20% myself and then the employer contribution is just extra.

  • #2
    The short answer is you can do it however you want to, and people do it different ways.  I tend to try and do what you are thinking and let the match be gravy on top of my 20% however I think the "book answer" is to view your match as part of your salary. So you count it in both the numerator and the denominator of the calculation.

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    • #3
      It depends on what 20% means to you and is subject to the constraints of your budget and your financial plan. If you don't include your employer contrib's then you'll obviously be that much more ahead.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        I'm generally in favor of doing what you suggested, saving 20% and considering the match a bonus.

        That being said, I see that you're a resident, and the ability to spend that 8% might do a lot more for you than it would for an attending.

        In your case, I would worry less about how you calculate your savings rate now and shoot for a higher savings rate as an attending, say 30% or 40%.  A few thousand dollars now is a pittance compared to saving six figures every year as soon as you graduate.

         

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        • #5
          Sorry, I am getting ahead of myself. I finish in a few months and just looking at financials and how much to set my 401k, 403b, 457, 529, and other contributions at when I do start getting those paychecks. If the money disappears from my paycheck before I ever see it, there is no way for me to start to grown into my income.

           

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          • #6




            Sorry, I am getting ahead of myself. I finish in a few months and just looking at financials and how much to set my 401k, 403b, 457, 529, and other contributions at when I do start getting those paychecks. If the money disappears from my paycheck before I ever see it, there is no way for me to start to grown into my income.

             
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            It looks like a lot of the details about where to put the money were covered in a previous post.  Looks like you've got a plan there.  Paying down the debt is a good idea, that's 4% guaranteed return.

            I would be wary of "growing into your income", but I'm not sure what that means.  For many, it means increasing spending commensurate with your increase in income.  First, work to get to a net worth of zero, then start to slowly ramp up your spending to a level at which you are comfortable and is consistent with you and your family's long-term goals.

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            • #7







              Sorry, I am getting ahead of myself. I finish in a few months and just looking at financials and how much to set my 401k, 403b, 457, 529, and other contributions at when I do start getting those paychecks. If the money disappears from my paycheck before I ever see it, there is no way for me to start to grown into my income.

               
              Click to expand…


              It looks like a lot of the details about where to put the money were covered in a previous post.  Looks like you’ve got a plan there.  Paying down the debt is a good idea, that’s 4% guaranteed return.

              I would be wary of “growing into your income”, but I’m not sure what that means.  For many, it means increasing spending commensurate with your increase in income.  First, work to get to a net worth of zero, then start to slowly ramp up your spending to a level at which you are comfortable and is consistent with you and your family’s long-term goals.
              Click to expand...


              As to "growing into...income", I took har02052 to mean that having savings withheld keeps him/her from spending more as income increases, which is a good thing. Was that it?
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                Yes, be a saver. Whether it is 12% or 28% or anywhere in between, you will be in a better place and better understand what your budget is.  Time is the most important thing when you are young: start right away.

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                • #9
                  I agree with the others that doesn't really matter. As a resident, it's near impossible to plan for retirement such that a savings rate can translate into expected retirement date or income at retirement. You just don't know enough about what your life will be like after residency.Therefore, any savings rate you pick as a goal is arbitrary, and 12% is just as arbitrary as 28%.

                  Either way, you're establishing good habits: picking a number and aiming for it. When, after you see what your life is like after residency, you can do some real retirement planning, you'll determine a "real" savings rate required to meet your goals. You'll already have the habits in place required to meet that goal of a savings rate.

                  Personally, I count my match as part of my savings rate, but I also track the match as part of my income (because it is income - it just happens to be completely tax free), so the value of my match decreases slightly.

                  That's just the way I do it, which is just as arbitrary as any other way of doing it.

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                  • #10
                    1) Tax advantaged accounts have a pretty big advantage over taxable accounts

                    2) Part of putting 20% towards retirement is that it forces you to live on that 80%, and so when retirement comes along you don't need to replace 100% of your salary, only 80% (well that's an over simplification, but you get the idea).

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                    • #11
                      Just to clarify:

                       

                      20% refers to gross or net (post-tax) income?

                       

                      Also, do people generally count their 529 savings as part of that 20%?

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                      • #12
                        I look at gross and do 2 savings rates - one with 529 included and one without.  Aim higher than 20% but do some basic modeling to see what you'll need.  Long term plan-->short term goals, budget helps to achieve the latter so you can achieve the former.

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                        • #13


                          Also, do people generally count their 529 savings as part of that 20%?
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                          You shouldn't, because you don't plan on using the 529 money in retirement. You should pat yourself on the back for putting money aside for your kids' college, though.

                          I encourage / challenge physicians to live on half their takehome pay. Put the rest towards retiring your student loans, preventing your kids from having them, and of course set aside for retirement.

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                          • #14
                            I have a somewhat similar question for everyone... My basic investments are in place with maxxed out pre-tax accounts and full contribution to Backdoor Roth IRAs.  For past several years we have also placed $10K/year in to 529s and then the rest into a taxable account. Recently some friends and I bought a commercial building, but instead of paying cash (which would have essentially wiped our taxable account, I took a small loan to pay our share of the downpayment (2.3% so seemed reasonable).

                            With all that in mind, I am repeating calculations about 20%. Do you consider contributions to 529s (HSAs if you have them), and in my situation, payments on commercial real estate loans "investing?" Essentially, should these be included in my 20% or do these fall into another category and I need to increase my savings elsewhere?

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                            • #15
                              I would start a new thread, but here are a few comments.

                              A savings rate is looking at things backwards. You should set financial goals (including how much you want to accumulate in retirement, taxable, HSA, 529, etc and over what time horizon), define your asset allocation, and figure out how much money you need to put in each bucket each year to hit your goals given the returns in your desired asset allocation. When you do this, you may find your goals are unrealistic, you need to save more than you thought, or you need a more aggressive asset allocation to hit your goals.

                              After you do the above, define the savings rate however you want, then use your defined savings rate to compare to the savings rate you need to meet your goals.

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