Savings Rate Advice

[SportsmedMD]

This is my first year calculating a savings rate. I have reviewed several websites and posts regarding this, but I would appreciate some personal advice on my savings rate.

Total gross income: $345,000

My work retirement (457 and 403b): $39,000
Spouse Retirement: $12,000
Backdoor Roth (I did it for 2020 and 2021 this year): $12,000
Mortgage Payments: $32,000
Cash saved for Emergency Fund in 2021: $45,000

$140,000 / $345,000 = 40% Savings Rate

I have no debt (besides the house), no kids, and no HSA.

I know their are several ways to calculate a savings rate and many opinions on this. I'm just curious if I have missed anything big on either side of the formula? I did not include my employers match ($19,500), as I consider that gravy on top and nothing I did to contribute to it; however, would appreciate others opinions on their savings rate calculations and if they have any major concerns with mine?

Thank you!

[CordMcNally]

Employer's match should be included in total compensation. I wouldn't necessarily consider mortgage payments as savings, either. Regardless, the only thing that matters is not necessarily the percentage you are saving but the absolute number. As long as it is enough to meet your goals then you're doing just fine.

[Tim]

Mortgage Payments: $32,000
Cash saved for Emergency Fund in 2021: $45,000
These are not really savings, reserves for future expenses and housing.
(savings + Employer contribution)/(Gross income * Employer contribution)
$63k/$345k = 18.26% without gross up
If you assume $15k employer:
$78k/$360k = 21.67% with gross up

[SLC OB]

I agree with CordMcNally that you don't include mortgage payments, unless you paid $32K above your normal payments... then you could count it.
I disagree with Tim that your $45K emergency fund is not a savings... however, you should not count that moving forward, as you should be cash flowing everything and just replacing it, if you need to dig into that account. Now, moving forward, you should be doing a Roth for both yourself and spouse.
So likely $108K/345K=31%
Good luck.

[SportsmedMD]

SLC OB Thank you for that information. The mortgage amount was not above the normal payments. I've also read some people will include their principal only. Maybe I should remove the mortgage and add my employer match (19.5k). Also, the Emergency fund was all money that I saved in 2021. I do not plan on counting that for future years, unless, of course, I decide to save more money in my emergency fund.

[Anne]

Would also recommend maxing out your spouse’s retirement too.

[Bmac]

OP, the $12000 for “spouse retirement” was spousal IRA for 2 years or their own workplace 401k/403b? If the former, why not back door Roth too? If the latter, is it being maxed?

Also, if you are maximizing all pretax and tax protected options and now have a satisfactory emergency fund, continue saving the extra cash like last year, but open up a taxable brokerage account and start investing there.

[VentAlarm]

SLC OB Thank you for that information. The mortgage amount was not above the normal payments. I've also read some people will include their principal only. Maybe I should remove the mortgage and add my employer match (19.5k). Also, the Emergency fund was all money that I saved in 2021. I do not plan on counting that for future years, unless, of course, I decide to save more money in my emergency fund.

So it’s kind of semantics, but there’s a difference between savings rate and wealth accumulation rate. Generally, people consider their savings rate as the amount of money they are investing for retirement - this doesn’t include future expenses paid (e.g. kids college, etc). You should include employer match in both your numerator and denominator.

The wealth accumulation rate on the other hand is what you’re putting towards your total net worth. This includes any extra mortgage payment as well as traditional principle payments (but not interest); also includes student loan pay down.

I think physician on fire did a post about this.

Also, not sure if you meant that you did 12k this year and 12k last year for backdoor roths, or 12k total - if the later, make sure you’re doing a spousal backdoor Roth IRA. And no reason not to max your wife’s retirement (unless she only makes 18 a year, then I’d keep doing the 6k Roth and 12k retirement). And make sure the cash you were putting towards your emergency fund gets diverted to savings not lifestyle inflation.

Good luck.

[Tim]

I agree with SLC OB that a one time Efund is savings. If doesn’t count for retirement 20%. It does count towards wealth accumulation rate. Are you saving for retirement or something else you plan to spend or invest? Different rates. Physician on Fire did a piece on WAR. Take away was 10% more might be a red line. You save for many things besides retirement. A lot of semantics. Good choice on the EFund.

[SportsmedMD]

OP, the $12000 for “spouse retirement” was spousal IRA for 2 years or their own workplace 401k/403b? If the former, why not back door Roth too? If the latter, is it being maxed?

Also, if you are maximizing all pretax and tax protected options and now have a satisfactory emergency fund, continue saving the extra cash like last year, but open up a taxable brokerage account and start investing there.

This was from her 401k last year. We do plan on doing spousal backdoor IRA this year (potentially for 2021 and 2022). And thank you for the other advice regarding taxable brokerage account.

[SportsmedMD]

VentAlarm and others, can you explain why you put the retirement match in both the numerator and denominator? So if they match $19,500, my numerator should be $127,500 (I removed the mortgage and added the 19.5k) and my denominator should be 345k + 19.5k = $364,500.

127,500 / 364,500 = 35% savings rate

Thanks again, great info from everyone

[TheDangerZone]

VentAlarm and others, can you explain why you put the retirement match in both the numerator and denominator? So if they match $19,500, my numerator should be $127,500 (I removed the mortgage and added the 19.5k) and my denominator should be 345k + 19.5k = $364,500.

127,500 / 364,500 = 35% savings rate

Thanks again, great info from everyone

The matched amount certainly counts as money saved/invested, but it is also part of your total compensation so it makes sense to account for it in your gross income.

[Lordosis]

The real question is the savings rate for what? If you're talking about the savings rate for retirement then only count monies that you were saving towards retirement. In this case I would count money going into your retirement funds from you and your employer. Also any money on a taxable account that is being saved for retirement. If you had an HSA or other accounts and they were being used for retirement than they would count as well.

However I would not count saving cash for other large purchases or emergency funds or paying off the mortgage. These are all good things but the money is not being directed towards the goal that you are trying to calculate the rate of.

If retirement savings rate is your goal 20% is a good one to start at anything above that is awesome.


If you are looking for just a general savings rate you can include whatever you want but I feel that number is not very useful.

[jfoxcpacfp]

We include employer match in the savings rate. Don’t care that it doesn’t come from you. We also include 529 contributions if paying for kids’ future education is one of clients’ goals.

I suppose extra mortgage pmts could count as savings as long as the early mortgage payoff is a future goal, i.e., it is treated as going into savings then coming back out. But that gets a little squirrelly, same as if you splurge on a once-in-a-lifetime trip above and beyond your annual vacation allowance. I don’t think I would go there, but what matters most is that you set your own rules, track results, and remain consistent from year-to-year.

[FIREshrink]

Mortgage Payments: $32,000
Cash saved for Emergency Fund in 2021: $45,000
These are not really savings, reserves for future expenses and housing.
(savings + Employer contribution)/(Gross income * Employer contribution)
$63k/$345k = 18.26% without gross up
If you assume $15k employer:
$78k/$360k = 21.67% with gross up

Agree mortgage is not savings, but the emergency fund is. Next year she won't have to save the EF again so that can be redirected to retirement savings.