Are You Saving 18%?
Posted on May 26, 2006 by Her and tagged 401k, retirement
According to economist Jack VanDerhei, the typical "best scenario" American family is saving around 9% of their salary in their 401(k). But by his estimation, the average American family needs to be saving up to 18% of their salary consistently for thirty years in their 401(k) to be able to maintain their pre-retirement standard of living. The 18% includes both employee contributions and the employer's matching contributions.
I save 6% of my salary and my employer adds a 40% match, so my total savings rate is 8.4% of my salary. Him saves 3% of his salary and his employer adds a 100% match up to 3% of his salary, for a total of 6%. We're a long way away from the 18% we need to be saving. Fortunately, we're starting young. Our first priority is to eliminate our debt. After that we can ratchet up the savings.
If you will rely solely on your 401(k), are you saving 18%?
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With employer match, I'm saving around 12% into my 401(k), but I'll probably bump that up in the next few years as my salary goes up.
Miserly Bastard | May 26, 2006
Just so your readers are clear, as I recall, this guy's 18% assumption only applied for people in the bottom 3 quartiles of income. For people who earn in the top-quartile, you can hit retirement goals with a lower savings rate.
My income varies, so I can't target the percentage, but I put the max dollars allowed under the law. Also, my employer adds 2% of my income each year (cheap, I know).
But I have only been doing that for the last two years. Before that I was around 6% like you guys.
Average Joe | May 26, 2006
While we're not relying entirely on my 401k, with my employer's match (6%, 100% vested immediately) and my 20%, we're putting away 26% into my 401k. Even with our 401k, our other investments, and maxed Roths, I still feel like we could be doing more.
I agree with Frugal, we're both kind of paranoid here as well, and not relying on any one leg of the table. We've done well at putting savings first with our finances. But it's hard at times with enjoying some of those 'extras' and saving more. You want to enjoy some of your money now. ; )
Nikki | May 27, 2006
I save 15% of each paycheck in an online savings account and contribute 6% (with employer matching) to my 401k
My husband has a 403(b) offered at his workplace. He contributes 15% along with a 7.5% match, for a total of 22.5%. I don't have a 401(k) plan, just a pension plan (which isn't as great as it sounds, given that I'm young and a part-time employee), so he has to contribute for the both of us. We also save an additional 13% of our collective paychecks.
So we're saving 27% of our combined salaries (including employer match).
nick | May 27, 2006
My wife's employer doesn't offer a 401K account. It is a startup. So I max out my 401K and since my employer matches 25% of every dollar, it is a good deal anyway. I am trying to also max out the Roth IRA, but it has been hard to balance it with the saving for a "house". We live in a condo right now.
After all is accounted for, 25% goes to tax, 15% towards retirement, 30% for the equity of this condo and saving for the new house, and we spent 30% of our pre-tax income. $5000/year for family back in the home country.
Double income no kids, 150K/year. I guess that helps. I would exepct the expense will be significantly higher once we have kids. That's why we have been agressive in our saving early on.
If you live below your means, you can save. It's simple math.
Michael | May 28, 2006
That's pretty much right on target for us. Between our Roth IRA's and my 401(k), are actual numbers are around 17.5%. We do have some pretty decent non-retirement account saving habits as well, so I think we're doing pretty good. We're a single-income family with 1 kid and plans for more, so I'd be pretty happy to continue at the rate we're going.
Seems I save 50% or so of after tax pay... My salary is around $75k. My employer provides 8% additional to a 403(b) on top of my quoted salary (at an 8:1 ratio is that a "match" and its compulsory - we have to put in 1% of our quoted pay). I don't own a house. So if I was contributing mortgage principal payments my savings rate would be a lot lower.
I save 10% in a 403b at both jobs. One employer matches 4% and the other matches 5%. So I'm at about 14.5%, plus I usually manage to put another 3 or 4% in my Roth, but it's inconsistent. I think I usually manage to get close to that 18% mark in retirement accounts but would like to be more consistent.
Spouse saves 15% in his 403b and his employer matches 3%. So he's on target at 18%, but he didn't start until he was 39. If he really only has to do that for 30 years, he may actually make it. That's comforting, to think of 30 years of aggressive saving as a goal. We can do that, even tho he got a late start.
We also save about 1% of our annual income in a 529 account, and perhaps another 2 or 3% in E-fund and short term type savings.
I save 10% in a 401K. My company matches 50% up to 5% of your salary. (That's 2.5%) So I save 12.5% of my income a year with my new job. However, at my old job, I saved about 2-4% because I had so little to spare, but I got a 50% match to that so my rate of return after fully vesting was phenomenal when you included the free money.
I feel bad for Sabrina, but when you are young with a lot of debts, you have to face a choice about what you really want in life. When I was younger, I made some desperate choices when I cashed out some 401k money. The world would have crashed about me and I probably would have faced bankruptcy if I hadn't cashed out. The trick, over time, is to reduce your debts, work hard, get raises and you'll get to the point where you can catch up to your bills and save. Or else do what I stubbornly refused to do, which was live on less than I earned.
RP | Jun 2, 2006
I contribute 16% with a 4% employer match plus I am fortunately grandfathered into a pension/cash balance plan where my employer puts 5% of my salary into a fixed return account (90% of the 5-year treasury rate, I believe). My husband contributes 10% with a 3% employer match.
We max out both our Roth IRAs, too, so in total, we're ending up with 24% of our gross salary going into retirement accounts (whoot!). Good thing, too, since we're planning to stop having to work for money in 10 years.
Karina | Aug 20, 2006
I have my 401k setup to automatically increase by at least 1% every year and I add my raises also. It went from 9 to 17 over the last few years, 14% plus my employer's 3% match, and I never felt a thing!
He saves only 9% (6 + 3 employer). His company's 401k options are so feeble, he would be better off in a money market account! When we have our credit card debts paid off this year, we are going to estimate our taxes with a max Roth IRA contribution for him and save that estimated tax return in a new account before December 31st. Again, no pain.
We both just turned 30, so I guess we'll be OK - it's hard to see our slumpy rates of return lately!
LivingAlmostLarge | Dec 27, 2006
Heck ya! We save about 35% of our gross $110k salaries. We max out DH's 401k, ESPP, Roth IRAs, etc. We are very scared about not having enough and we're 27 and 29. In DH's 1 year of working we already have $25k in a 401k with match and earnings. We have $20k in Roth IRAs. Live below your means and it's easy.
We bought a house before when we made $40k combined. So live cheap.
Frugal Homemaker | May 26, 2006
My huband puts 10% of his salary into his 401K, and they match up to a certain dollar amount. I have a Roth IRA, and we contribute 100 dollars a month to it. After all our debt is paid, we are going to max out the contributions. (I don't work outside the home currently.) We also save 10 percent of his income in various savings accounts- for a house down payment, an emerg. fund, a general savings, fund, etc. We save A LOT. We're both kind of paranoid people, and do not really depend on any one method. We may save less when we have a house and have more expenses, but for now, that's where were at.
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