What is the average savings rates for bogleheads?

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drumboy256
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Re: What is the average savings rates for bogleheads?

Post by drumboy256 »

40, two kids, mortgage and vacations to fund so around 10-15% of gross. Should it be more? Sure, but gotta pay yourself first.
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Re: What is the average savings rates for bogleheads?

Post by sailaway »

KlangFool wrote: Sat Jul 24, 2021 6:52 am OP,

I save 1 year of expense every year. Saving rate based on income is useless.

KlangFool
We max out workplace plans (including MBR), then generally save all of RSUs and ESPP proceeds.

I can very well translate that to a percentage of income (~66% of net). I can also translate that to a ratio of what we spend each year (save 2x spending).

Unlike others who gave similar numbers, we aren't saving "too much," because we are content with what we are spending and we save the rest. Every once in a great while, that ends up flipping the formula: we spend twice as much as we save. I feel weird when that happens, but 33% still looks good compared to averages.

I just don't see how that is going to help the OP set any goals. And that isn't just a question of income. They might not be happy living my lifestyle. They probably don't have the same priorities and dreams.
nguy44
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Re: What is the average savings rates for bogleheads?

Post by nguy44 »

Havoner wrote: Fri Jul 23, 2021 10:28 pm So lots of different ways of calculating this I am sure but just to keep it consistent would like to hear what people's savings rates are as a percentage of net pay after taxes. Mine averages about 25%-35% depending on bonuses and expenses. Would like to collect some rough data from the group but please feel free to share if there has been a survey or something similar in the past that collects this.

What sort of rate do you normally have?
Has it varied that much over the years or been fairly consistent?
Do you regret having too much of one and not enjoying more or saving too little and wish you had put back more?
For what it is worth, our data (rounded) since 2002. Income includes w2 gross, investment, and gifts for both my wife and I (also pension since 2018 and wife SS since 2019). Expenses include taxes.

Code: Select all

Year Age   Income     Expenses    Savings   Rate

2002	44    $256,000   $175,000    $81,000	32%
2003	45    $244,000   $178,000    $66,000	27%
2004	46    $234,000   $187,000    $47,000	20%
2005	47    $223,000   $194,000    $29,000	13%
2006	48    $220,000   $185,000    $35,000	16%
2007	49    $237,000   $175,000    $62,000	26%
2008	50    $265,000   $185,000    $80,000	30%
2009	51    $230,000   $169,000    $61,000	27%
2010	52    $245,000   $156,000    $89,000	36%
2011	53    $234,000   $150,000    $84,000	36%
2012	54    $258,000   $152,000   $106,000	41%
2013	55    $234,000   $171,000    $63,000	27%
2014	56    $235,000   $160,000    $75,000	32%
2015	56    $248,000   $176,000    $72,000	29%
2016	58    $256,000   $185,000    $71,000	28%
2017	59    $286,000   $176,000   $110,000	38%
2018	60    $313,000   $169,000   $144,000	46%
2019	61    $110,000   $143,000   -$33,000   -30%
2020	62    $111,000   $102,000     $9,000     8%
No regrets having a high savings rate, we made enough that we were still able to enjoy life, and even more so now in retirement.
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Re: What is the average savings rates for bogleheads?

Post by KlangFool »

sailaway wrote: Sat Jul 24, 2021 9:46 am
KlangFool wrote: Sat Jul 24, 2021 6:52 am OP,

I save 1 year of expense every year. Saving rate based on income is useless.

KlangFool
We max out workplace plans (including MBR), then generally save all of RSUs and ESPP proceeds.

I can very well translate that to a percentage of income (~66% of net). I can also translate that to a ratio of what we spend each year (save 2x spending).

Unlike others who gave similar numbers, we aren't saving "too much," because we are content with what we are spending and we save the rest. Every once in a great while, that ends up flipping the formula: we spend twice as much as we save. I feel weird when that happens, but 33% still looks good compared to averages.

I just don't see how that is going to help the OP set any goals. And that isn't just a question of income. They might not be happy living my lifestyle. They probably don't have the same priorities and dreams.
sailaway,

<<I just don't see how that is going to help the OP set any goals. >>

I disagreed. Saving rate based on annual expense is a lot better than saving rate based on income. Saving rate based on annual expense tells the person whether they can be Financially Independence in x number of years. It may or may not be their goals. But, saving rate based on income has ZERO utility.

<<They might not be happy living my lifestyle.>>

It is based on the person's current annual expense. Hence, it is relevant to their lifestyles and nobody else. It is highly context sensitive.

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Re: What is the average savings rates for bogleheads?

Post by truenorth418 »

I'm retired now, but for my entire working years I saved about 70% of my after tax income. That's about 45% of gross income.
lurkman
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Re: What is the average savings rates for bogleheads?

Post by lurkman »

Klangfool,

You’ve answered my question while denying the question or maintaining the air that there is no question there that you can understand. Must be your rhetorical style.

No worries. Good luck to you and family.
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Re: What is the average savings rates for bogleheads?

Post by Rainmaker41 »

We save 72% of household disposable income after taxes (2.5 years of current expenses saved per year) including employer retirement contributions as savings in the numerator and as income in the denominator.
Last edited by Rainmaker41 on Sat Jul 24, 2021 10:05 am, edited 1 time in total.
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quantAndHold
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Re: What is the average savings rates for bogleheads?

Post by quantAndHold »

-3%, give or take, since we both stopped working.

While we were working, it varied from 2%-45%, depending on our income and expenses. There might have been a year or two that it was actually below zero.
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Re: What is the average savings rates for bogleheads?

Post by invest4 »

Super charged savings the last 3 years as I endeavor to bulk up Roth via the mega back door route. On a net pay basis, this is currently running at 60%. Otherwise...40%.
ruralavalon wrote: Sat Jul 24, 2021 9:09 am Expenses like self-employment taxes, college tuition for children, mortgage payments, and real estate taxes suck up huge amounts from net income. So the percentage savings rate will vary greatly depending on the stage of life someone is in.
General point taken, but I don't think it's consistent as income is an important factor. For example, although my expenses are much greater at age 48 with bigger mortgage, property taxes, children in college, etc...I am currently saving a greater % than in my 30s (expenses were much less). I think for others, the opposite may be the case.
nguy44 wrote: Sat Jul 24, 2021 9:46 am [
For what it is worth, our data (rounded) since 2002. Income includes w2 gross, investment, and gifts for both my wife and I (also pension since 2018 and wife SS since 2019). Expenses include taxes.

Code: Select all

Year Age   Income     Expenses    Savings   Rate

2002	44    $256,000   $175,000    $81,000	32%
2003	45    $244,000   $178,000    $66,000	27%
2004	46    $234,000   $187,000    $47,000	20%
2005	47    $223,000   $194,000    $29,000	13%
2006	48    $220,000   $185,000    $35,000	16%
2007	49    $237,000   $175,000    $62,000	26%
2008	50    $265,000   $185,000    $80,000	30%
2009	51    $230,000   $169,000    $61,000	27%
2010	52    $245,000   $156,000    $89,000	36%
2011	53    $234,000   $150,000    $84,000	36%
2012	54    $258,000   $152,000   $106,000	41%
2013	55    $234,000   $171,000    $63,000	27%
2014	56    $235,000   $160,000    $75,000	32%
2015	56    $248,000   $176,000    $72,000	29%
2016	58    $256,000   $185,000    $71,000	28%
2017	59    $286,000   $176,000   $110,000	38%
2018	60    $313,000   $169,000   $144,000	46%
2019	61    $110,000   $143,000   -$33,000   -30%
2020	62    $111,000   $102,000     $9,000     8%
No regrets having a high savings rate, we made enough that we were still able to enjoy life, and even more so now in retirement.
Thanks for sharing. Interested as to what key expenses were reduced / eliminated after retirement to achieve such a significant drop ($169K to $102K). Of course, assuming that is somewhat permanent (plus or minus a bit) vs an anomaly for that particular year.
Last edited by invest4 on Sat Jul 24, 2021 10:13 am, edited 1 time in total.
word
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Re: What is the average savings rates for bogleheads?

Post by word »

Gross: 35%
Net 46%
456M
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Re: What is the average savings rates for bogleheads?

Post by 456M »

Things work a lil different where I live so here goes

7% of gross is automatically deducted to fund lifetime retirement salary
8% of gross is automatically deducted and invested by company's retirement fund (paid as lump sum at retirement)
65% of gross is my personal savings rate for investment
Remaining 20% of gross goes towards expenses.

No income tax here.
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TierArtz
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Re: What is the average savings rates for bogleheads?

Post by TierArtz »

I'll provide 5 year averages, starting in 1988, for saving of gross income (net would be higher):
9%
19%
20%
25%
27%
23%
40% (4 years extrapolated to end of 2021)
27% of gross over the last 37 years.
In the first five years, spending (gross minus invested) averaged $32K
In the last five years, spending averaged $208K
What I find amazing is due to growth on investments, our current portfolio is 78% of cumulative income over the last 37 years.

No regrets. I still research every purchase to death and typically opt for the "Buy once, cry once" option.
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Re: What is the average savings rates for bogleheads?

Post by KlangFool »

lurkman wrote: Sat Jul 24, 2021 9:59 am Klangfool,

You’ve answered my question while denying the question or maintaining the air that there is no question there that you can understand. Must be your rhetorical style.

No worries. Good luck to you and family.
Great! This is my system/model. Pick whatever that may work for you and use it if it is useful to you.

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Re: What is the average savings rates for bogleheads?

Post by catlady »

Between 1-2 years of annual expenses.
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Re: What is the average savings rates for bogleheads?

Post by diabelli »

Ours is about 25% and I wish it were 30%-40%.
I think less is irresponsible and more is a failure to recognize our own mortality.
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Re: What is the average savings rates for bogleheads?

Post by sailaway »

diabelli wrote: Sat Jul 24, 2021 12:02 pm Ours is about 25% and I wish it were 30%-40%.
I think less is irresponsible and more is a failure to recognize our own mortality.
Couldn't possibly just be different goals than you, must be a failure to understand life.
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Re: What is the average savings rates for bogleheads?

Post by Normchad »

Yep. Different strokes for different folks.

I have coworkers who save nothing for the future.

Turns out they retired from the military in their 40s, and their pensions, lifetime healthcare, and SS is all they will need. Makes sense to me.
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Re: What is the average savings rates for bogleheads?

Post by OldSport »

Roughly 28% pre-tax. After tax is higher. Seems a good balance between enjoying now vs. saving for future
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Re: What is the average savings rates for bogleheads?

Post by diabelli »

sailaway wrote: Sat Jul 24, 2021 12:09 pm
diabelli wrote: Sat Jul 24, 2021 12:02 pm Ours is about 25% and I wish it were 30%-40%.
I think less is irresponsible and more is a failure to recognize our own mortality.
Couldn't possibly just be different goals than you, must be a failure to understand life.
You'll note that my sentence started out with "I think".
Just my own silly philosophical thoughts.
MathWizard
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Re: What is the average savings rates for bogleheads?

Post by MathWizard »

It is usually a progression.

Life usually prevents large percentage savings
until later in life when obligations are less.

After grad school, I had a negative net worth.

Savings for retirement was 15% of gross for many years while
we provided for kids,
saved for a down payment (on top of savings for retirement)
then mortgage payments
then savings for college for the kids (on top of savings for retirement)
During this savings retirement was able to grow to about 17.5% of gross, but no more.

After the house was paid off, and the kids were out of college,
that freed up a large amount of income.

After that it was 43% , then as a 2nd retirement vehicle opened up (457b)
it went to 62%
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Re: What is the average savings rates for bogleheads?

Post by nguy44 »

invest4 wrote: Sat Jul 24, 2021 10:05 am Thanks for sharing. Interested as to what key expenses were reduced / eliminated after retirement to achieve such a significant drop ($169K to $102K). Of course, assuming that is somewhat permanent (plus or minus a bit) vs an anomaly for that particular year.
$102K was a slight anomaly due to the pandemic, which eliminated almost all our travel. It should have been closer to $120-$125K. Still a good drop from $169K. The 3 major categories that went down from 2018 to 2020:

- Federal+State Taxes (almost $31K less)
- Charity (less income so less giving, about $10K less)
- A few long term home renovations (about $10k, we did a lot of this in 2017 and 2018 to take care of this expense before retirement)
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Re: What is the average savings rates for bogleheads?

Post by Waiting_for_Godot »

I save 30% pre-tax in 401k between employer and my contributions, after that I typically bank 1 bi-weekly paycheck and spend the other, so 50% of net after that.
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Re: What is the average savings rates for bogleheads?

Post by Mike Scott »

You can't possibly win this game on bogleheads. Pick a savings rate that you are willing and able to accomplish based on your income, family, life and financial circumstances.
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Re: What is the average savings rates for bogleheads?

Post by Ron Ronnerson »

About half of gross income goes toward savings. I include mortgage principal as savings (I recently did a cash-out refi and invested a portion of what was previously in home equity so mortgage principal was turned into cash and then stock). We spend the rest.

We save this much mainly due to tax incentives. Retirement should be covered by pension and social security but saving half our gross income results in tax benefits that include virtually eliminating all income tax liability in the present (federal income taxes make up less than half a percent of our gross income and we don’t have any California income tax liability) along with receiving tax credits equal to about 17% of gross salary. We’re basically incentivized to save half our salary or else pay much more in taxes due to the complete loss of substantial tax credits (tax cliffs). That’s the main reason as to why we save what we do.

We saved a lower percentage when we were a two-income household due to the denominator being bigger and not being as motivated to save due to the tax credits not being in play at that time. The plan is to save at the current rate for another decade or so (we’re in our mid-40s) and then downshift to part time work and basically stop saving at that point.

I wish to save less but that is overcome by my desire to not end up in a very high marginal tax bracket.
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Re: What is the average savings rates for bogleheads?

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (savings rate).

(This thread is actionable, as the OP is asking for information on the members' own situation.)
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Re: What is the average savings rates for bogleheads?

Post by quantAndHold »

Normchad wrote: Sat Jul 24, 2021 12:15 pm Yep. Different strokes for different folks.

I have coworkers who save nothing for the future.

Turns out they retired from the military in their 40s, and their pensions, lifetime healthcare, and SS is all they will need. Makes sense to me.
Exactly. I have a $500/month, non COLA’d pension that pays once I turn 65. That and Social Security, is all my wife and I get. My best friend has a COLA’d pension that pays all her and her husband’s living expenses, plus retiree medical, plus Social Security.

Needless to say, our savings rates were different while we were working.
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Re: What is the average savings rates for bogleheads?

Post by Lee_WSP »

pasadena wrote: Fri Jul 23, 2021 11:27 pm So in % of net, how do you count pre-tax savings like 401(k) or HSA?
It's probably easier to think in terms of gross income, so divide the post tax savings by (1 - effective tax rate) and you'll be using the same denominators.

It's a similar math problem to the how much is a Roth or tax deferred dollar worth?
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Re: What is the average savings rates for bogleheads?

Post by Lee_WSP »

KlangFool wrote: Sat Jul 24, 2021 8:27 am
lurkman wrote: Sat Jul 24, 2021 7:02 am
KlangFool wrote: Sat Jul 24, 2021 6:52 am OP,

I save 1 year of expense every year. Saving rate based on income is useless.

KlangFool
Do you mean 1 year of projected retirement expenses or current expenses? Or are they about the same?
I save 1 year of current annual expense every year. I save for Financial Independence. Not for retirement.

KlangFool
You mean core expenses right? Because if you just save one year's worth of total expenses, then that's the same as saving fifty percent.
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Re: What is the average savings rates for bogleheads?

Post by ExTx »

I'm retired. So about 30-35% goes into an emergency fund and a taxable account with stocks. So about 1k into the EF, and 500 a month into the taxable. If we have left overs after our bills, that goes into a "fun" account.
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Re: What is the average savings rates for bogleheads?

Post by KlangFool »

Lee_WSP wrote: Sat Jul 24, 2021 2:39 pm
KlangFool wrote: Sat Jul 24, 2021 8:27 am
lurkman wrote: Sat Jul 24, 2021 7:02 am
KlangFool wrote: Sat Jul 24, 2021 6:52 am OP,

I save 1 year of expense every year. Saving rate based on income is useless.

KlangFool
Do you mean 1 year of projected retirement expenses or current expenses? Or are they about the same?
I save 1 year of current annual expense every year. I save for Financial Independence. Not for retirement.

KlangFool
You mean core expenses right? Because if you just save one year's worth of total expenses, then that's the same as saving fifty percent.
Lee_WSP,

50% of what? Gross income? Net Income? Please note that taxes are NOT part of the expense. And, a fair amount of savings are pre-tax.

It is easy to be confused when the saving rate is defined as per income.

Gross Income = Annual Saving + Annual Expense + Taxes.

<<You mean core expenses right?>>

A) There is no concept of core expense in my system.

B) I consider the WHOLE mortgage payment (PITI) as expenses.

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Re: What is the average savings rates for bogleheads?

Post by ruralavalon »

diabelli wrote: Sat Jul 24, 2021 12:02 pm Ours is about 25% and I wish it were 30%-40%.
I think less is irresponsible and more is a failure to recognize our own mortality.
"Irresponsible"? Hardly.There are different priorities for different people, and different priorities at different stages of life and different levels of income.
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Re: What is the average savings rates for bogleheads?

Post by sschoe2 »

About 30-40% My spending per year is about $40k I spend very little less than 1% on discretionary. Everything else is savings. I want to be prepared to retire early should anything happen to my job in my rotten career (Chemist). My chances of getting another decent job in my field are low.
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Re: What is the average savings rates for bogleheads?

Post by SnowBog »

ruralavalon wrote: Sat Jul 24, 2021 3:59 pm
diabelli wrote: Sat Jul 24, 2021 12:02 pm Ours is about 25% and I wish it were 30%-40%.
I think less is irresponsible and more is a failure to recognize our own mortality.
"Irresponsible"? Hardly.There are different priorities for different people, and different priorities at different stages of life and different levels of income.
Exactly!

Someone starting their first job after college may not even be able to do 15%. (I know I couldn't at that stage, but the majority of my pay raises went to savings until I maxed out my 401k.)

Someone planning on retiring in 10 years with nothing currently saved better be saving a lot more than 25%.

I'm saving more now than I ever have before in my life, but my income is also in some of the highest years with expenses in some of the lowest (of recent years), and FI is close enough we can taste it... Once we cross FI, we'll likely be saving a lot less, and spending a lot more (on trips, remodeling/repairs, and other things that won't necessarily increase our long term expenses).
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Re: What is the average savings rates for bogleheads?

Post by PowderDay9 »

KlangFool wrote: Sat Jul 24, 2021 9:43 am
lurkman wrote: Sat Jul 24, 2021 9:35 am
KlangFool wrote: Sat Jul 24, 2021 9:15 am
What variability? When you save first and spend later, what is the variability?

1) For example, if you earn 120K per year and you auto-deduct 40K from your paycheck, you only have 80K of gross income to spend. You cannot spend what you don't have.
Right. Everyone understands that. You save 40k through auto-deduct and have 80k to spend. Suppose now you have college expenses in addition to your usual expenses. You could probably trim some lifestyle expenses but you may still be stretched to accommodate college expenses and your usual expenses within the $80k. If this happens, then you can no longer save $40k that year. Such variations in expenses introduce variability.

You don’t see any variability in your life circumstances (having faced unemployment multiple times) to actually ask the question, “What variability?”

Variability in income, variability in expenses, variability in life circumstances all introduce variability in your ability to save 1 year of expense every year.
lurkman,

1) When I am unemployed, I have no income. But, I spend the same amount.

2) When I am employed, I saved my expense first.

3) Except for college education funding, I have no variability in my expense.

<<variability in expenses, variability in life circumstances >>

4) So, what is your question?

A) I have no variability in expense except college expense.
B) I have no variability in life circumstances except for unemployment.

<<may still be stretched to accommodate college expenses and your usual expenses within the $80k.>>

5) My annual expense is about 50K to 60K per year. The college expense is either 30K per year (one kid) or 60K per year (two kid).

6) When one kid go to college, I spend 60K + 30K = 90K per year. I save 30K instead of my usual 60K per year.

7) When two kids go to college I spend 60K + 60K = 120K per year. I save nothing for that year.

KlangFool
KlangFool,

In your other thread you said your compensation recently went up by 40%. Congrats on the new job!
viewtopic.php?f=2&t=353587

You said above that you have no variability in your expense. So by simply math, doesn't that mean you will be saving more than 1 year of expense now? Your income just went up substantially. Both statements cannot be true with your new job. Either your expenses will go up or your savings rate will be more than 1 year.

OP asked for net pay savings rate. Unless I'm missing something, net pay excludes taxes. It is all the money you have to either spend or save. So it's easy to convert that percentage into how many years of expenses saved. If 50% then it's one year saved. If 75% then it's 3 years saved, etc.
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Re: What is the average savings rates for bogleheads?

Post by KlangFool »

PowderDay9 wrote: Sat Jul 24, 2021 9:50 pm
KlangFool wrote: Sat Jul 24, 2021 9:43 am
lurkman wrote: Sat Jul 24, 2021 9:35 am
KlangFool wrote: Sat Jul 24, 2021 9:15 am
What variability? When you save first and spend later, what is the variability?

1) For example, if you earn 120K per year and you auto-deduct 40K from your paycheck, you only have 80K of gross income to spend. You cannot spend what you don't have.
Right. Everyone understands that. You save 40k through auto-deduct and have 80k to spend. Suppose now you have college expenses in addition to your usual expenses. You could probably trim some lifestyle expenses but you may still be stretched to accommodate college expenses and your usual expenses within the $80k. If this happens, then you can no longer save $40k that year. Such variations in expenses introduce variability.

You don’t see any variability in your life circumstances (having faced unemployment multiple times) to actually ask the question, “What variability?”

Variability in income, variability in expenses, variability in life circumstances all introduce variability in your ability to save 1 year of expense every year.
lurkman,

1) When I am unemployed, I have no income. But, I spend the same amount.

2) When I am employed, I saved my expense first.

3) Except for college education funding, I have no variability in my expense.

<<variability in expenses, variability in life circumstances >>

4) So, what is your question?

A) I have no variability in expense except college expense.
B) I have no variability in life circumstances except for unemployment.

<<may still be stretched to accommodate college expenses and your usual expenses within the $80k.>>

5) My annual expense is about 50K to 60K per year. The college expense is either 30K per year (one kid) or 60K per year (two kid).

6) When one kid go to college, I spend 60K + 30K = 90K per year. I save 30K instead of my usual 60K per year.

7) When two kids go to college I spend 60K + 60K = 120K per year. I save nothing for that year.

KlangFool
KlangFool,

In your other thread you said your compensation recently went up by 40%. Congrats on the new job!
viewtopic.php?f=2&t=353587

You said above that you have no variability in your expense. So by simply math, doesn't that mean you will be saving more than 1 year of expense now? Your income just went up substantially. Both statements cannot be true with your new job. Either your expenses will go up or your savings rate will be more than 1 year.

OP asked for net pay savings rate. Unless I'm missing something, net pay excludes taxes. It is all the money you have to either spend or save. So it's easy to convert that percentage into how many years of expenses saved. If 50% then it's one year saved. If 75% then it's 3 years saved, etc.
PowderDay9,

<<So by simply math, doesn't that mean you will be saving more than 1 year of expense now?>>

1) I only have half year of salary. But, I would be saving 1 year of expense.

2) I plan to spend more next year. But, I probably would be saving more than 1 year of expense next year.

<<OP asked for net pay savings rate. Unless I'm missing something, net pay excludes taxes. It is all the money you have to either spend or save. So it's easy to convert that percentage into how many years of expenses saved. If 50% then it's one year saved. If 75% then it's 3 years saved, etc.>>

3) Really? Your net pay exclude all your contribution to 401K/HSA too. For example, it will be 40K to 50K to me. My take-home pay savings will be close to zero. But, I will be saving about 1 year of expense this year. How is this simple?

KlangFool
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Re: What is the average savings rates for bogleheads?

Post by PowderDay9 »

KlangFool wrote: Sat Jul 24, 2021 10:09 pm 3) Really? Your net pay exclude all your contribution to 401K/HSA too. For example, it will be 40K to 50K to me. My take-home pay savings will be close to zero. But, I will be saving about 1 year of expense this year. How is this simple?
KlangFool
OP said "net pay after taxes". I add back any deductions to 401k or HSA. These figures go in the numerator and denominator. "Net pay after taxes" to me means that it's all pay net of taxes, therefore you either save or spend what is left.
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anon_investor
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Re: What is the average savings rates for bogleheads?

Post by anon_investor »

KlangFool wrote: Sat Jul 24, 2021 10:09 pm
PowderDay9 wrote: Sat Jul 24, 2021 9:50 pm
KlangFool wrote: Sat Jul 24, 2021 9:43 am
lurkman wrote: Sat Jul 24, 2021 9:35 am
KlangFool wrote: Sat Jul 24, 2021 9:15 am
What variability? When you save first and spend later, what is the variability?

1) For example, if you earn 120K per year and you auto-deduct 40K from your paycheck, you only have 80K of gross income to spend. You cannot spend what you don't have.
Right. Everyone understands that. You save 40k through auto-deduct and have 80k to spend. Suppose now you have college expenses in addition to your usual expenses. You could probably trim some lifestyle expenses but you may still be stretched to accommodate college expenses and your usual expenses within the $80k. If this happens, then you can no longer save $40k that year. Such variations in expenses introduce variability.

You don’t see any variability in your life circumstances (having faced unemployment multiple times) to actually ask the question, “What variability?”

Variability in income, variability in expenses, variability in life circumstances all introduce variability in your ability to save 1 year of expense every year.
lurkman,

1) When I am unemployed, I have no income. But, I spend the same amount.

2) When I am employed, I saved my expense first.

3) Except for college education funding, I have no variability in my expense.

<<variability in expenses, variability in life circumstances >>

4) So, what is your question?

A) I have no variability in expense except college expense.
B) I have no variability in life circumstances except for unemployment.

<<may still be stretched to accommodate college expenses and your usual expenses within the $80k.>>

5) My annual expense is about 50K to 60K per year. The college expense is either 30K per year (one kid) or 60K per year (two kid).

6) When one kid go to college, I spend 60K + 30K = 90K per year. I save 30K instead of my usual 60K per year.

7) When two kids go to college I spend 60K + 60K = 120K per year. I save nothing for that year.

KlangFool
KlangFool,

In your other thread you said your compensation recently went up by 40%. Congrats on the new job!
viewtopic.php?f=2&t=353587

You said above that you have no variability in your expense. So by simply math, doesn't that mean you will be saving more than 1 year of expense now? Your income just went up substantially. Both statements cannot be true with your new job. Either your expenses will go up or your savings rate will be more than 1 year.

OP asked for net pay savings rate. Unless I'm missing something, net pay excludes taxes. It is all the money you have to either spend or save. So it's easy to convert that percentage into how many years of expenses saved. If 50% then it's one year saved. If 75% then it's 3 years saved, etc.
PowderDay9,

<<So by simply math, doesn't that mean you will be saving more than 1 year of expense now?>>

1) I only have half year of salary. But, I would be saving 1 year of expense.

2) I plan to spend more next year. But, I probably would be saving more than 1 year of expense next year.

<<OP asked for net pay savings rate. Unless I'm missing something, net pay excludes taxes. It is all the money you have to either spend or save. So it's easy to convert that percentage into how many years of expenses saved. If 50% then it's one year saved. If 75% then it's 3 years saved, etc.>>

3) Really? Your net pay exclude all your contribution to 401K/HSA too. For example, it will be 40K to 50K to me. My take-home pay savings will be close to zero. But, I will be saving about 1 year of expense this year. How is this simple?

KlangFool
How are people viewing company 401k and HSA contributions? Do they count as savings and this also added to gross income for calculation purposes?
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Re: What is the average savings rates for bogleheads?

Post by PowderDay9 »

anon_investor wrote: Sat Jul 24, 2021 10:16 pm How are people viewing company 401k and HSA contributions? Do they count as savings and this also added to gross income for calculation purposes?
I include those in gross income and also count them as savings. Same for net of taxes income. They are income and savings, but just forced into certain accounts.
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Re: What is the average savings rates for bogleheads?

Post by anon_investor »

PowderDay9 wrote: Sat Jul 24, 2021 10:29 pm
anon_investor wrote: Sat Jul 24, 2021 10:16 pm How are people viewing company 401k and HSA contributions? Do they count as savings and this also added to gross income for calculation purposes?
I include those in gross income and also count them as savings. Same for net of taxes income. They are income and savings, but just forced into certain accounts.
I wonder if some people exclude them completely in their calculations or include them in savings but not income (thus juicing their %).
PowderDay9
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Re: What is the average savings rates for bogleheads?

Post by PowderDay9 »

anon_investor wrote: Sat Jul 24, 2021 10:33 pm
PowderDay9 wrote: Sat Jul 24, 2021 10:29 pm
anon_investor wrote: Sat Jul 24, 2021 10:16 pm How are people viewing company 401k and HSA contributions? Do they count as savings and this also added to gross income for calculation purposes?
I include those in gross income and also count them as savings. Same for net of taxes income. They are income and savings, but just forced into certain accounts.
I wonder if some people exclude them completely in their calculations or include them in savings but not income (thus juicing their %).
I'm sure it happens. I find the savings rate threads confusing because of all the different ways somebody can calculate their savings rate. OP asked for net of taxes and several people posted their gross savings rate.

Maybe we need a complete list for the numerator and denominator to define both gross and net savings rates.
word
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Re: What is the average savings rates for bogleheads?

Post by word »

Sharing again because I found myself thinking more about my first reply. I don’t think you should be comparing your savings rate with those making vastly more than yourself or those with different life situations. It would be very hard to save 30%+ if you’ve got a family and make 50k per year.

So in the interest of providing some extra context:

Gross: 35%
Net: 46%

Household income: ~300k
1 child, 24k/year for daycare (HCOL obv)
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Re: What is the average savings rates for bogleheads?

Post by KlangFool »

PowderDay9 wrote: Sat Jul 24, 2021 10:39 pm
anon_investor wrote: Sat Jul 24, 2021 10:33 pm
PowderDay9 wrote: Sat Jul 24, 2021 10:29 pm
anon_investor wrote: Sat Jul 24, 2021 10:16 pm How are people viewing company 401k and HSA contributions? Do they count as savings and this also added to gross income for calculation purposes?
I include those in gross income and also count them as savings. Same for net of taxes income. They are income and savings, but just forced into certain accounts.
I wonder if some people exclude them completely in their calculations or include them in savings but not income (thus juicing their %).
I'm sure it happens. I find the savings rate threads confusing because of all the different ways somebody can calculate their savings rate. OP asked for net of taxes and several people posted their gross savings rate.

Maybe we need a complete list for the numerator and denominator to define both gross and net savings rates.
PowderDay9,

And, the whole problem is eliminated if the saving rate is based on annual expense instead. And, it is a better number. If the goal is for FI, the person use current annual expense. If the goal is for retirement, the person use retirement expense. Then, it is done.

The saving rate based on income has no relevance to the GOAL. It is a pointless number.

Save 1 year or 100% of the annual expense, you will reach your goal in less than 20 years. Save X% of the income has no meaning. What income? Gross? Net? Take-home? Include bonus/commission? Overtime? Working hard to get a meaningless number. Why bother?

KlangFool
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Dancer
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Re: What is the average savings rates for bogleheads?

Post by Dancer »

Nicolas wrote: Sat Jul 24, 2021 9:31 am For most of my career I saved between 6-10%, I couldn’t afford more, and I always saved the maximum to get the full employer match, but as wealth increased and my mortgage disappeared I saved 50% in the latter years.
Similar (although I'm not up to a paid off mortgage) -- typically 6-12% (generally lower range). Plus usually 3-4% company match.

Doesn't include Mortgage principle.

Would prefer more, but, doing ok.

HCOL area; Solid but no where near spectacular salary
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Re: What is the average savings rates for bogleheads?

Post by anon_investor »

KlangFool wrote: Sat Jul 24, 2021 11:00 pm
PowderDay9 wrote: Sat Jul 24, 2021 10:39 pm
anon_investor wrote: Sat Jul 24, 2021 10:33 pm
PowderDay9 wrote: Sat Jul 24, 2021 10:29 pm
anon_investor wrote: Sat Jul 24, 2021 10:16 pm How are people viewing company 401k and HSA contributions? Do they count as savings and this also added to gross income for calculation purposes?
I include those in gross income and also count them as savings. Same for net of taxes income. They are income and savings, but just forced into certain accounts.
I wonder if some people exclude them completely in their calculations or include them in savings but not income (thus juicing their %).
I'm sure it happens. I find the savings rate threads confusing because of all the different ways somebody can calculate their savings rate. OP asked for net of taxes and several people posted their gross savings rate.

Maybe we need a complete list for the numerator and denominator to define both gross and net savings rates.
PowderDay9,

And, the whole problem is eliminated if the saving rate is based on annual expense instead. And, it is a better number. If the goal is for FI, the person use current annual expense. If the goal is for retirement, the person use retirement expense. Then, it is done.

The saving rate based on income has no relevance to the GOAL. It is a pointless number.

Save 1 year or 100% of the annual expense, you will reach your goal in less than 20 years. Save X% of the income has no meaning. What income? Gross? Net? Take-home? Include bonus/commission? Overtime? Working hard to get a meaningless number. Why bother?

KlangFool
Why not save more than 1x/yr?
reader79
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Re: What is the average savings rates for bogleheads?

Post by reader79 »

We save about 3-4 years of expenses every year. Our household income is set to double next year, so we will be saving 6-8 years each year until our income increases again. We love what we do and don't see any point in retiring. We still have everything we need and most of what we want. I don't see a need to adjust our standard of living because we are content with what we have.

We focus a lot more on how we invest our time than our money. With two little kids and sick family members, spending time with them is where we get our biggest return on investment.
VTI: 50%, QQQM: 30%, VO: 10%, VB: 10%
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Re: What is the average savings rates for bogleheads?

Post by anon_investor »

reader79 wrote: Sun Jul 25, 2021 1:11 am We save about 3-4 years of expenses every year. Our household income is set to double next year, so we will be saving 6-8 years each year until our income increases again. We love what we do and don't see any point in retiring. We still have everything we need and most of what we want. I don't see a need to adjust our standard of living because we are content with what we have.

We focus a lot more on how we invest our time than our money. With two little kids and sick family members, spending time with them is where we get our biggest return on investment.
Wow :shock: . You must really live below your means! :sharebeer
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Re: What is the average savings rates for bogleheads?

Post by Bogle7 »

Ours is negative.
We are spending.
Old fart who does three index stock funds, baby.
fourwheelcycle
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Re: What is the average savings rates for bogleheads?

Post by fourwheelcycle »

Duplicate Post
Last edited by fourwheelcycle on Mon Jul 26, 2021 6:26 am, edited 2 times in total.
KlangFool
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Re: What is the average savings rates for bogleheads?

Post by KlangFool »

anon_investor wrote: Sat Jul 24, 2021 11:30 pm
KlangFool wrote: Sat Jul 24, 2021 11:00 pm
PowderDay9 wrote: Sat Jul 24, 2021 10:39 pm
anon_investor wrote: Sat Jul 24, 2021 10:33 pm
PowderDay9 wrote: Sat Jul 24, 2021 10:29 pm

I include those in gross income and also count them as savings. Same for net of taxes income. They are income and savings, but just forced into certain accounts.
I wonder if some people exclude them completely in their calculations or include them in savings but not income (thus juicing their %).
I'm sure it happens. I find the savings rate threads confusing because of all the different ways somebody can calculate their savings rate. OP asked for net of taxes and several people posted their gross savings rate.

Maybe we need a complete list for the numerator and denominator to define both gross and net savings rates.
PowderDay9,

And, the whole problem is eliminated if the saving rate is based on annual expense instead. And, it is a better number. If the goal is for FI, the person use current annual expense. If the goal is for retirement, the person use retirement expense. Then, it is done.

The saving rate based on income has no relevance to the GOAL. It is a pointless number.

Save 1 year or 100% of the annual expense, you will reach your goal in less than 20 years. Save X% of the income has no meaning. What income? Gross? Net? Take-home? Include bonus/commission? Overtime? Working hard to get a meaningless number. Why bother?

KlangFool
Why not save more than 1x/yr?
A balanced approach. For the goal to FI in less than 20 years, it is good enough.

Save too much and if you don't live long, you don't get to spend your money.

KlangFool
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Re: What is the average savings rates for bogleheads?

Post by HombrePeludo »

Counting 401k match, employer hsa contribution in gross income, and savings.

For 2020 we saved 49% of gross, net would be 58.5% but I feel gross to be a better metric. This is 1.4x living expenses. Our goal for 2021 and the next few years is 55-60% of gross, but we don't take it too seriously. Plan on staying full throttle for the next 5 or so years at which point we may hit a level of FI where we would theoretically be fine if we wanted to eat hot dogs and stare at a wall all day.

At that point we would be okay with buying a nice home / having kids etc. (Neither of us have any desire to ever have kids, but alot can change in 5 years) I don't see us ever missing out on tax advantaged space, so savings rate will likely drop to ~30% not counting home equity IF we still want to buy a house.
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