Author Topic: Can you settle an argument? Savings rate...  (Read 2761 times)

Rustyfa

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Can you settle an argument? Savings rate...
« on: September 27, 2017, 08:19:38 PM »
Couple earns $120k. 

Couple has $25k go into 401k, $30k with match.  $11k into roths.  So $41k a year in retirement savings.

Couple brings home $65k in paychecks.  Couple has $600 a month taken out beforehand for insurance. 

What is couples savings rate?

NotJen

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Re: Can you settle an argument? Savings rate...
« Reply #1 on: September 27, 2017, 08:37:07 PM »
If there is no savings over the $41k retirement, the way *I* calculate savings rate, it would be 32.8%.

$41k savings / $125k income (add 5k match to the income side). If you leave out the match, you're at 30% (36k/120k).

Everything else gets counted as spending (whether it is taxes, insurance, or living expenses).

terran

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Re: Can you settle an argument? Savings rate...
« Reply #2 on: September 27, 2017, 08:37:32 PM »
I believe the Mustachian "simple math" version is based on net income, so in that case the savings rate would be $41k/($65k+$41k) =  38.7%.

I've also seen people base it on gross income, in which case it would be $41k/($120k+$5k) = 32.8%.

Scortius

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Re: Can you settle an argument? Savings rate...
« Reply #3 on: September 27, 2017, 08:44:55 PM »
I think MMM uses the post-tax gross, including the $5k match. Given that, income would be:

65k take home + 25k 401k + 5k match, + 7.2k insurance = 102.2k MMM AGI

The insurance is part of the compensation package, so I include it, but that's certainly debatable.

A big question you didn't answer was whether or not the IRA was withheld.  I'm assuming no.

Savings then is:

25k 401 + 5k match + 11k IRA = 41k

41 / 102.2 = 40% give or take.

Rustyfa

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Re: Can you settle an argument? Savings rate...
« Reply #4 on: September 27, 2017, 09:36:02 PM »
Thanks, I took 30 percent.  Looks like I'm wrong.  38.7.

Wings5

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Re: Can you settle an argument? Savings rate...
« Reply #5 on: September 27, 2017, 10:26:42 PM »
Sometimes this stuff feels like 17 year olds comparing SAT scores. Is your savings rate poor, decent, good, great?

With a little trickery some people have a savings rate >100% with tax deferred compensation.

Lews Therin

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Re: Can you settle an argument? Savings rate...
« Reply #6 on: September 28, 2017, 10:45:09 AM »
The math trickery is sometime worth doing, but because the math logic from MMM is directly related to how much time you have left to FIRE, if you're using another formula, the time left to FIRE doesn't work.