Getting Confused Trying to Calculate Savings Rate

[TrumpetS3]

Hi Folks,

I've spent quite some hours working on spreadsheets and reading many posts and websites but I'm still having a hard time with calculating my basic savings rate.

I think my situation is pretty straightforward, here are my particulars:

I have a 401k which I'm maxing out every pay period at 18%.
A Roth IRA which is maxed out, I usually pay into this after my tax return once per year.
Taxable account which I intend growing steadily with my biweekly salary into US & INT stocks.
I have worked out all the household outgoing expenses per month.
A sizable savings account which I'll be transferring into my taxable investments very soon.

I'm mostly getting confused with how to incorporate my 401k and IRA into the calculation. I'll be 59 in 20 years so I won't be seeing the benefits of those tax efficient accounts until then. However I'm compelled to be FI way before then if possible.

Also what do I do with the taxable capital in the calculation?

The MMM The Shockingly Simple Math Behind Early Retirement makes it sound pretty easy, but I'm not getting anywhere with figuring this out.

Any help would be much appreciated.

Thanks, TS3

[boarder42]

you can get money out of those accounts using a Roth IRA ladder at no cost other than taxes at time of rollover from T-IRA to R-IRA.  for simplicty sake lets assume you make 100k here is how i would calc my savings rate

401k max - 18k
Roth max  - 5.5k
HSA max - 3.75k
Taxable - 20k

This person would be saving - 47.25k  or a 47.25% savings rate.

[boarder42]

at the end of the day though savings rate is useless.  as soon as you have money saved the shockingly simple post doesnt project anything for you.  I make a spreadsheet that shows me projected gains and then it shows what my available withdrawal would be at 3.8% then i know how many years i have left.  i also have company stock in an ESOP so the shockingly simple math doesnt apply b/c the stock is crazy good.  so the gains destroy normal expected market gains.

[dandarc]

http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

[andy85]

Gross pay
+ any employer match/contribution to your 401(k) etc
- taxes
- medical, vision, life, etc
=take home pay

1-(spending/take home pay) = savings rate

That is how i do it.

example:

Gross Pay	$5,129
Add: 401(k) Match	$215
Less: Taxes	$1,243
Less: Med., Vis., Supp. Life	$77
Add: Rent	$300
Take Home Pay	$4,322
Spent	$3,642
Savings Rate	16%
Spending Rate	84%

[TrumpetS3]

Thanks for the prompt replies. I was not aware of the ladder system, is this a fairly common procedure for those looking for FI at <59.5?

I had been assuming that my retirement accounts would remain untouchable until 59.5 so did not consider including these in my savings rate. Is it common practice to include these retirement contributions into the saving rate calculation? It does make sense when I think of my portfolio as a whole to include them. This pushes the savings rate I had calculated with just my pure pre-retirement funds from 30% to over 50%!

[boarder42]

yes you should be maxing them it speeds up time to FIRE and i doubt the ladder ever goes away b/c it gets the govt their tax dollars now vs. later.

[2Birds1Stone]

There are many ways to access that pre-tax money.

I would absolutely count toward savings rate and look to max that space out!

[MDM]

at the end of the day though savings rate is useless.

+1

Excel's NPER function will give you an estimate of your time to FI that is as good as your inputs.  See https://support.office.com/en-us/article/NPER-function-240535b5-6653-4d2d-bfcf-b6a38151d815. 

NPER(rate,pmt,pv,[fv],[type])

The NPER function syntax has the following arguments:

    Rate    The interest rate per period.  E.g., 5%/yr real.
    Pmt    The payment made each period.  This is your annual amount put into investments from which you will withdraw in retirement.
    Pv    The present value of your retirement savings.
    Fv    The future value, or a cash balance you want to attain after the last payment is made.  This is your expected annual spending in retirement (in today's dollars if you use a real interest rate), divided by your planned Withdrawal Rate.

Due to Excel's conventions, you need to use the negative of Pmt and Pv in the NPER function.

If you want math details, see http://forum.mrmoneymustache.com/ask-a-mustachian/fire-in-8-years/.