Are we saving enough?? Too much??

[Wister5]

My brain is spinning, and I could use some clarification. In WCI's blog scenario today (What to Do If All You Have Is a 401(k)), he includes the $5k employer match as part of the gross salary when calculating what the target savings should be at 20%.

My question: If I receive a 401K profit-sharing contribution (in liue of an employer "match"), should I factor that into my gross salary when trying to determine what the 20% savings target is?

And, then do I re-use that profit-sharing number when trying to determine if I am meeting that savings goal?

Below are the real-time numbers from last year. Could someone weigh-in as to whether I am looking at this correctly?

 

Base Salary $200k

Board Member Stipend $5K

Profit Sharing 401K Contribution $39,750

Bonus $85k

Total $329,750 (so 20% savings target = $65,950)

________________

Savings Comprised of:

$53000 to 401(k)  which is = to the $39,750 profit sharing + $13,250 contributed out of paycheck pre-tax

$11,000 Backdoor Roth Contributions (me and non-working spouse)

$1950 Contribution to taxable account

Total Retirement Savings $65,950

 

Or....should it have looked like this:

Base Salary $200k

Board Member Stipend $5K

Bonus $85k

Total $290,000 (20% savings target = $58,000)

 

Savings Comprised of:

$53000 to 401(k)  which is = to the $39,750 profit sharing + $13,250 contributed out of paycheck pre-tax

$11,000 Backdoor Roth Contributions

Total Retirement Savings $64,000 (over the 20% goal...but okay because we are maxing out what we can save.)

 

Basically, I am just confused about how to treat the profit-sharing contribution. I should add that we are comfortable with the amount we are putting away for kids' college savings...but would like to be paying down our house faster.

 

TIA for your input.

 

 

 

 

[MPMD]

not a huge deal either way.

i think advice is generally to include things like this (employer match as well) in the denominator as well as the numerator.

this would fall into the category of: things about which i would not agonize.

[FIREshrink]

We do it the first way

[PhysicianOnFIRE]

20% is a ballpark figure, and I think it's on the low side. Since you're saving 100% of the profit sharing, you should certainly include it in both the top and bottom of the equation (numerator and denominator as @MPMD pointed out).

Since taxes vary widely by state, I like to look at after-tax savings. I recommend saving (or paying down debt) with half, and living on the other half. In most cases, that will get you financial independence within 15 to 20 years. Then you can do whatever you want with your job, paychecks, etc... It may sound drastic, but for most docs, it still allows for a six-figure spending allowance per annum.

[Hatton]

Just remember that the money that you save early (30s for docs) will compound immensely over your career.  It is your bedrock.

[jfoxcpacfp]

Crixus wrote:

hatton1 wrote:

Just remember that the money that you save early (30s for docs) will compound immensely over your career.  It is your bedrock.

Click to expand…

Negative interest rates and the subsequent devaluation of sovereign debt/currencies might throw a crimp in that plan. This is the time to sit on the left side of the x-axis of the yield curve. They will take the short end below zero to keep the curve from inverting if need be. But this will be only a prelude to the inevitable implosion of the debt red supergiant as layers of debt instruments pancake upon each other engendering a supernova—aka monetary aggregate inversion…everything becomes money of zero maturity. Nobody will want to be a creditor.

Click to expand...

Where can I find translation software for this?

[ENT Doc]

You're focusing on the wrong thing IMO. What does your spending look like?

[Jaqen Haghar MD]

I always find it confusing when people start asking where to put the dollars on the spreadsheet to make to %s look different.  At that point, who cares. Unless the final goal is spreadsheet creation according to a certain rule.

I think the 20% is a wake-up guideline for people who don't save enough.  You should save the maximum amount that is reasonable (usually much more than 20% for most physicians) and then track your net worth.

If you are saving $65,950, that is the concrete reality.  If you can afford to save $100,000 you have a problem.  If that's the most you can do, good job.  Percentages are honestly irrelevant to me.

[Wister5]

Good question. We are debt-free accept for the mortgage. Have our EF in place. Household runs on a pretty tight budget with sinking funds for larger expenditures (property taxes, insurance, holiday spending, car repaired and so on.) Kids’ college payments/savings are also being adequately addressed. Bonus is typically used for “extras” like vacations, home improvements and, this year, replacing a car. In the future, more of the bonus will be available to throw at the house. Life’s about choices. I guess in the end, shooting for the larger retirement savings and dedicating more of the bonus to paying down the mortgage is probably the route we should take.

[hightower]

Crixus wrote:

hatton1 wrote:

Just remember that the money that you save early (30s for docs) will compound immensely over your career.  It is your bedrock.

Click to expand…

Negative interest rates and the subsequent devaluation of sovereign debt/currencies might throw a crimp in that plan. This is the time to sit on the left side of the x-axis of the yield curve. They will take the short end below zero to keep the curve from inverting if need be. But this will be only a prelude to the inevitable implosion of the debt red supergiant as layers of debt instruments pancake upon each other engendering a supernova—aka monetary aggregate inversion…everything becomes money of zero maturity. Nobody will want to be a creditor.



 

Click to expand...

He's back!  Been gone for a while Crixus...have you been on vacation?  (where does Crixus vacation?)  That graph is hilarious btw

[hightower]

Wister5 wrote:

Good question. We are debt-free accept for the mortgage. Have our EF in place. Household runs on a pretty tight budget with sinking funds for larger expenditures (property taxes, insurance, holiday spending, car repaired and so on.) Kids’ college payments/savings are also being adequately addressed. Bonus is typically used for “extras” like vacations, home improvements and, this year, replacing a car. In the future, more of the bonus will be available to throw at the house. Life’s about choices. I guess in the end, shooting for the larger retirement savings and dedicating more of the bonus to paying down the mortgage is probably the route we should take.

Click to expand...

Rather than just focusing on the savings rate it's probably more helpful for you to calculate your target retirement number.  25X your annual spending is what you need to be able to retire (some people want 30-50X).  So, look closely at how much money you spend per year on everything from mortgage, insurance, food, gas, vacations, etc, etc, etc.  Then multiple it by 25 and that's the minimum you need in investments to walk away from your work and never look back.  Then look at how much money you're putting away each year, enter that info into an investment calculator and see how many years it will take you to reach your goal.  That will give you a better idea of "how you're doing."  You have to kind of know what age you would prefer to stop working.  If it's before 65, you also have to account for health insurance costs which is difficult to do given all the unknowns we're currently dealing with.

You could post some of your specific numbers here if you want people to comment on how you're doing?  The board is anonymous.

[Wister5]

Terrific point, hightower. Thank you for taking the time to comment. Assuming a retirement age of 65, is it realistic to expect that our monthly spending would remain about the same as it is now?

Yes, we won't be saving for college or paying a mortgage (since we plan to have it paid off well before retirement)...but we may use the cash difference to vacation more. We won't be feeding the kids from the grocery budget...but we may use the difference to eat out more often. I think both my spouse and I feel like we are living a comfortable life, within our means, and would like for that to continue into retirement.

[Hatton]

Figuring out your annual spending is critical to determine when and how much before retiring.  25x is the number if you are retiring around 65.  At a 4% drawdown your money will last 30 years and probably have some left for heirs.  If you retire in your 40s or 50s a more conservative number is 3% or 33X.  Your spending in retirement will be different.  Probably less.  No ss taxes, no life or disability, No licenses, No CME, hopefully no mortgage or alimony.  It is different for all.  Calculate it by using mint or personal capital.

[hightower]

Wister5 wrote:

Assuming a retirement age of 65, is it realistic to expect that our monthly spending would remain about the same as it is now?

Click to expand...

Figuring out what you will need for retirement is an entirely personal question.  You really have to spend some time carefully considering what kind of lifestyle you will want and how much money you'll need each year to achieve it.  It will probably take you quite some time to really nail that down.

[Kamban]

Wister5 wrote:

Assuming a retirement age of 65, is it realistic to expect that our monthly spending would remain about the same as it is now?

Click to expand...

Agree that mortgage and kid's education won't be in the budget but you will have the living expenses, long term health care and travel expenses. Based on what driverless cars look like you might also need them. Calculate all the costs as of today and see what it will cost in the future when you plan to retire ( number of years x inflation %).