On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

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Kennedy
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On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by Kennedy » Tue Feb 19, 2019 6:32 pm

I see references on this forum to people who save a certain percentage of their income (30% of income, etc.). Is that generally understood to be pre-tax or post-tax, or is there not a general understanding when someone makes such a claim on this forum?

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by radiowave » Tue Feb 19, 2019 6:35 pm

OP, the "rule of thumb" is save 15% of gross income over a work lifetime.
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dbr
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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by dbr » Tue Feb 19, 2019 6:38 pm

There is not a general understanding. It could be one person has a good idea what it should be, but someone else can have just as good a different idea. When someone states a number like that for themselves they can specify what they mean. When quoting articles it may be nobody knows what the definition is.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by livesoft » Tue Feb 19, 2019 6:40 pm

I think it has to be pre-tax because many people contribute to tax-deferred 401(k), 403(b), 457, ... accounts.
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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by dbr » Tue Feb 19, 2019 6:42 pm

livesoft wrote:
Tue Feb 19, 2019 6:40 pm
I think it has to be pre-tax because many people contribute to tax-deferred 401(k), 403(b), 457, ... accounts.
To which can be added the question whether employer contributions are part of income, etc.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by Mike Scott » Tue Feb 19, 2019 6:44 pm

I agree that there is not a general consenus and that basing it on gross income would seem to make sense but what do I know.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by pkcrafter » Tue Feb 19, 2019 6:48 pm

Kennedy wrote:
Tue Feb 19, 2019 6:32 pm
I see references on this forum to people who save a certain percentage of their income (30% of income, etc.). Is that generally understood to be pre-tax or post-tax, or is there not a general understanding when someone makes such a claim on this forum?
Your saving/investing rate is a % of your income. We usually recommend 15% minimum if possible go to investments in either or both tax-deferred or taxable. Tax deferred first. If you are in a company plan and have automatic salary deductions, that's part of the 15%. If you get an employer match, that's not counted toward income saved, it's a bonus.


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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by 02nz » Tue Feb 19, 2019 6:57 pm

There's no one standard so it's good to specify what's meant. I think taking the pre-tax amount saved and dividing by the pre-tax income makes most sense. Taxes can be treated as an expense like any other.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by zaboomafoozarg » Tue Feb 19, 2019 7:05 pm

pre-tax

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by DoTheMath » Tue Feb 19, 2019 7:31 pm

There isn't a consensus. That said, I agree with the others that pre-tax makes more sense. For me taxes are an expense which can vary and I have some control over. I don't compute my savings rate after subtracting out my housing cost (another unavoidable expense I have some but not complete control over). It doesn't make sense to me to say taxes are special and should be subtracted out first.
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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by pasadena » Tue Feb 19, 2019 7:37 pm

There is no consensus, and people tend to not specify, which makes it rather meaningless.

Personally, I track both: Pre-tax savings out of gross income, and after-tax savings out of "what's left" (take home).

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by Dottie57 » Tue Feb 19, 2019 7:38 pm

livesoft wrote:
Tue Feb 19, 2019 6:40 pm
I think it has to be pre-tax because many people contribute to tax-deferred 401(k), 403(b), 457, ... accounts.
This.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by Grt2bOutdoors » Tue Feb 19, 2019 7:48 pm

Oh no!! this might turn out to be a 15 page thread on whether it's pre or post tax, whether we count the employer's contribution, then others will chime in about using pre-tax and after-tax percentages muddles things up as one is not the same as the other. :wink:

OP - I use pre-tax, but be on the lookout for varying opinions on this. :D
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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by nolesrule » Tue Feb 19, 2019 7:50 pm

Grt2bOutdoors wrote:
Tue Feb 19, 2019 7:48 pm
Oh no!! this might turn out to be a 15 page thread on whether it's pre or post tax, whether we count the employer's contribution, then others will chime in about using pre-tax and after-tax percentages muddles things up as one is not the same as the other. :wink:

OP - I use pre-tax, but be on the lookout for varying opinions on this. :D
You forgot about using takehome pay, which substitutes after-tax with after-withholding. :mrgreen:

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by quantAndHold » Tue Feb 19, 2019 8:13 pm

Unlike net worth, this one doesn't have a standard definition.

But yeah, I always used pre-tax.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by Xrayman69 » Tue Feb 19, 2019 8:29 pm

I use pretax total as it is a easy absolute number for me. I don’t know what taxes are going to be taken out or how much I will owe next year. I know how much I should be earning as a base and calculate my contribution and employer match to get me at least to 20%. There after I’m pretty sure I should be ok. More than 20% great, but at least that much by rule of thumb and thus able to budget lifestyle accordingly.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by Spirit Rider » Tue Feb 19, 2019 8:34 pm

To be the eternal contrarian, I always used the tax effective contribution amounts / gross compensation. This is because a pre-tax contribution cost you less and is worth less than a post-tax contribution.

It really only costs you $1 - ($1 * contribution marginal tax rate) out of pocket on each $1 pre-tax contribution and each dollar of that contribution is worth $1 - ($1 * likely withdrawal marginal tax rate). Whereas, it does cost you $1 out of pocket on each $1 Roth contribution and each dollar of that contribution is worth $1 regardless of your likely withdrawal marginal tax rate.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by JBTX » Tue Feb 19, 2019 9:11 pm

I would have said no formal definition because many do pre tax, Roth and taxable. If you want to get technical what spirit rider said above is correct.

As to 15%, that seems like the low side of what many do here, and you arent likely retiring early with that amount. We have generally put in between 15 to 30% over the years, and I always feel like a deadbeat around here compared to what others do.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by AerialWombat » Tue Feb 19, 2019 9:29 pm

quantAndHold wrote:
Tue Feb 19, 2019 8:13 pm
Unlike net worth, this one doesn't have a standard definition.
Well, about that... :)

Some people use the proper accounting definition of net worth, but many people here don’t include home equity. I’ve seen a few folks on BH that don’t include EF, or some other bucket.

I personally track my proper accounting net worth, as well as a number of my own definition which, while still an improper application of the phrase, I refer to as “liquid net worth”. This latter number is the one I manage toward.

Oh, and for OP: Pre-tax gross is the only one that I think makes sense, and most people here, on MMM, and Reddit seem to use.
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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by FederalFIRE » Tue Feb 19, 2019 10:01 pm

Given the structure of the recommended posting format about personal finances, it would seem that savings rates on this site are *intended* to be pre-tax, and employer contributions are counted as extra. This typical format suggests income first and then breaks out contributions to tax advantaged, tax deferred, and taxable accounts, and calls out employer contributions separately.

Regardless of what the forum standards are for posting, it seems the most reasonable way to consider such rules of thumb as pre-tax dollars. In my opinion it isn't unreasonable to count employer contributions in the mix since that is "free" money for you. However, all that said, the semantics of the discussion are a bit unnecessary, since you can easily find recommendations ranging from 15% to 30%. Because of this, the fact that one is saving, and doing so intentionally and beyond the basics, is far more important.
Last edited by FederalFIRE on Tue Feb 19, 2019 10:09 pm, edited 1 time in total.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by JustinR » Tue Feb 19, 2019 10:07 pm

Pre-tax.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by monkeydluffy » Tue Feb 19, 2019 11:06 pm

My traditional retirement account contributions are entirely made post-tax, both in my Roth 457(b) and my Roth IRA. I do contribute to a taxable brokerage account every now and then, but that's beyond the scope of this discussion.

A bit of background: my employer provides a pension. It's the type of pension that replaces Social Security entirely, so I don't contribute to Social Security at all except for Medicare. The annual amount that gets distributed to me when I retire uses the following formula:
Highest 36-month final average compensation window * years employed * 2%.
After estimating how much I could potentially make by the time I retire, the pension alone would take me up to the exact same marginal tax bracket that I'm currently in at 22%. So from my view, pre- or post-tax doesn't really matter, but I'm a lot more comfortable asserting that the amount in my Roth accounts is exactly what I'll be getting when I retire.

Edit: Forgot to mention that the annual pension amount is capped to 80% of the final average compensation. So in other words, after the 40th year of service, your payout won't go any higher.
Last edited by monkeydluffy on Wed Feb 20, 2019 12:01 am, edited 1 time in total.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by H-Town » Tue Feb 19, 2019 11:41 pm

Kennedy wrote:
Tue Feb 19, 2019 6:32 pm
I see references on this forum to people who save a certain percentage of their income (30% of income, etc.). Is that generally understood to be pre-tax or post-tax, or is there not a general understanding when someone makes such a claim on this forum?
Of course it's pre-tax.

You need to know where every dollar of your income go. If you make $100, put $20 to 401k, pay $20 tax, spend $20, and save $40. Your saving rate is 60%. It's calculated as $60 total saving / $100 gross income.

If you get employer match or profit sharing, it goes to both numerator and denominator. It's part of your comp and you save the entire amount.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by AlphaLess » Tue Feb 19, 2019 11:50 pm

Kennedy wrote:
Tue Feb 19, 2019 6:32 pm
I see references on this forum to people who save a certain percentage of their income (30% of income, etc.). Is that generally understood to be pre-tax or post-tax, or is there not a general understanding when someone makes such a claim on this forum?
It does not matter.
Say, I make $100K gross.
Pay $20K in taxes.
And save $20K.

Then I save 20% of gross, and 25% of net.

Either way, it is a number.

What difference does it make?
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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by AlphaLess » Tue Feb 19, 2019 11:54 pm

monkeydluffy wrote:
Tue Feb 19, 2019 11:06 pm
Highest 36-month final average compensation window * years employed * 2%.
Wow. What a utopistic pension.

Say, you get a nice raise for the last 3 years, bringing you to 50% higher than the previous 10.
You put in 33 years of service.

Then you get a pension equal to 100% of your Y-13 to Y-3 pay.
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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by monkeydluffy » Tue Feb 19, 2019 11:56 pm

AlphaLess wrote:
Tue Feb 19, 2019 11:54 pm
monkeydluffy wrote:
Tue Feb 19, 2019 11:06 pm
Highest 36-month final average compensation window * years employed * 2%.
Wow. What a utopistic pension.

Say, you get a nice raise for the last 3 years, bringing you to 50% higher than the previous 10.
You put in 33 years of service.

Then you get a pension equal to 100% of your Y-13 to Y-3 pay.
I forgot to mention that it's capped to 80% of that final average compensation. So in other words, after 40 years of working, you won't go any higher.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by AlphaLess » Wed Feb 20, 2019 12:09 am

monkeydluffy wrote:
Tue Feb 19, 2019 11:56 pm
AlphaLess wrote:
Tue Feb 19, 2019 11:54 pm
monkeydluffy wrote:
Tue Feb 19, 2019 11:06 pm
Highest 36-month final average compensation window * years employed * 2%.
Wow. What a utopistic pension.

Say, you get a nice raise for the last 3 years, bringing you to 50% higher than the previous 10.
You put in 33 years of service.

Then you get a pension equal to 100% of your Y-13 to Y-3 pay.
I forgot to mention that it's capped to 80% of that final average compensation. So in other words, after 40 years of working, you won't go any higher.
Still, it is a pretty awesome deal.

Consider social security, as a comparison.

Say, you make exactly the max social security taxable income ($132K today).
Say, you work for 35 years (say, from 30 to 65 years of age), making exactly that income in inflation adjusted terms.
Then, one year later, you retire.
You will collect around $2,800 / M at most, or $33.6K a year.

That's 25% ratio (pension / income).

On top of it, SS is capped in absolute numbers.
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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by monkeydluffy » Wed Feb 20, 2019 12:32 am

AlphaLess wrote:
Wed Feb 20, 2019 12:09 am
monkeydluffy wrote:
Tue Feb 19, 2019 11:56 pm
AlphaLess wrote:
Tue Feb 19, 2019 11:54 pm
monkeydluffy wrote:
Tue Feb 19, 2019 11:06 pm
Highest 36-month final average compensation window * years employed * 2%.
Wow. What a utopistic pension.

Say, you get a nice raise for the last 3 years, bringing you to 50% higher than the previous 10.
You put in 33 years of service.

Then you get a pension equal to 100% of your Y-13 to Y-3 pay.
I forgot to mention that it's capped to 80% of that final average compensation. So in other words, after 40 years of working, you won't go any higher.
Still, it is a pretty awesome deal.

Consider social security, as a comparison.

Say, you make exactly the max social security taxable income ($132K today).
Say, you work for 35 years (say, from 30 to 65 years of age), making exactly that income in inflation adjusted terms.
Then, one year later, you retire.
You will collect around $2,800 / M at most, or $33.6K a year.

That's 25% ratio (pension / income).

On top of it, SS is capped in absolute numbers.
Keep in mind: this is the slightly-gimped version of my pension. Older workers use the following formula and they are limited to 100% of final average compensation:
Highest 12-month final average compensation window * years of service * 2.16%
So it behooves those older workers to constantly seek promotions and stay in that position for a full twelve months.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by Grogs » Wed Feb 20, 2019 6:21 am

AlphaLess wrote:
Wed Feb 20, 2019 12:09 am
monkeydluffy wrote:
Tue Feb 19, 2019 11:56 pm
AlphaLess wrote:
Tue Feb 19, 2019 11:54 pm
monkeydluffy wrote:
Tue Feb 19, 2019 11:06 pm
Highest 36-month final average compensation window * years employed * 2%.
Wow. What a utopistic pension.

Say, you get a nice raise for the last 3 years, bringing you to 50% higher than the previous 10.
You put in 33 years of service.

Then you get a pension equal to 100% of your Y-13 to Y-3 pay.
I forgot to mention that it's capped to 80% of that final average compensation. So in other words, after 40 years of working, you won't go any higher.
Still, it is a pretty awesome deal.

Consider social security, as a comparison.

Say, you make exactly the max social security taxable income ($132K today).
Say, you work for 35 years (say, from 30 to 65 years of age), making exactly that income in inflation adjusted terms.
Then, one year later, you retire.
You will collect around $2,800 / M at most, or $33.6K a year.

That's 25% ratio (pension / income).

On top of it, SS is capped in absolute numbers.
You have to remember that SS is a progressive system though. If you're not a high earner, you'll get a higher percentage. Someone around the 2nd bend point (around 70k/yr average) would get around 40% of salary, and someone near minimum wage would be approaching 90%. If this is a group of public-sector employees making fairly modest salaries, the bonus over SS might not be all that great. There's also no mention of inflation adjustment, so after 20 years that pension that was providing 80% of salary initially may only be 50% in real terms.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by MossySF » Wed Feb 20, 2019 7:15 am

Post-tax (w/ pre-tax contributions added back in) makes more mathematical sense in that you can only save what you have access to. But how many people even know what their post-tax is except at tax filing time? You'd need a complex spreadsheet to keep track of this.

So it's much easier to guestimate pre-tax.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by Retired2013 » Wed Feb 20, 2019 8:07 am

monkeydluffy wrote:
Tue Feb 19, 2019 11:06 pm
My traditional retirement account contributions are entirely made post-tax, both in my Roth 457(b) and my Roth IRA. I do contribute to a taxable brokerage account every now and then, but that's beyond the scope of this discussion.

A bit of background: my employer provides a pension. It's the type of pension that replaces Social Security entirely, so I don't contribute to Social Security at all except for Medicare. The annual amount that gets distributed to me when I retire uses the following formula:
Highest 36-month final average compensation window * years employed * 2%.
After estimating how much I could potentially make by the time I retire, the pension alone would take me up to the exact same marginal tax bracket that I'm currently in at 22%. So from my view, pre- or post-tax doesn't really matter, but I'm a lot more comfortable asserting that the amount in my Roth accounts is exactly what I'll be getting when I retire.

Edit: Forgot to mention that the annual pension amount is capped to 80% of the final average compensation. So in other words, after the 40th year of service, your payout won't go any higher.
My nephew works for a school district. He keeps telling me that his pension plus SS will equal 100% of pay when he retires. Can't get him to save even $0.01.

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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by LadyGeek » Wed Feb 20, 2019 10:14 am

This thread is now in the Personal Finance (Not Investing) forum (taxes). I also clarified the title for readability "Pre-Tax" and "Post-Tax".
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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by Olemiss540 » Wed Feb 20, 2019 10:22 am

AerialWombat wrote:
Tue Feb 19, 2019 9:29 pm
quantAndHold wrote:
Tue Feb 19, 2019 8:13 pm
Unlike net worth, this one doesn't have a standard definition.
Well, about that... :)

Some people use the proper accounting definition of net worth, but many people here don’t include home equity. I’ve seen a few folks on BH that don’t include EF, or some other bucket.

I personally track my proper accounting net worth, as well as a number of my own definition which, while still an improper application of the phrase, I refer to as “liquid net worth”. This latter number is the one I manage toward.

Oh, and for OP: Pre-tax gross is the only one that I think makes sense, and most people here, on MMM, and Reddit seem to use.
No sir, MMM uses POST tax savings rate as outlined by the following blogposts:

https://www.mrmoneymustache.com/2012/01 ... etirement/
http://www.mrmoneymustache.com/2015/01/ ... net-worth/

Personally I use MMM's method as it sounds more impressive :D :D .

Otherwise, I just use normal projections based on various savings rates/rates of returns/retirement dates to make sure I am within range of my goal. Savings rates dont hold any value outside of comparison with your past or future self as a means of holding yourself accountable.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by AerialWombat » Wed Feb 20, 2019 10:30 am

Olemiss540 wrote:
Wed Feb 20, 2019 10:22 am
AerialWombat wrote:
Tue Feb 19, 2019 9:29 pm
quantAndHold wrote:
Tue Feb 19, 2019 8:13 pm
Unlike net worth, this one doesn't have a standard definition.
Well, about that... :)

Some people use the proper accounting definition of net worth, but many people here don’t include home equity. I’ve seen a few folks on BH that don’t include EF, or some other bucket.

I personally track my proper accounting net worth, as well as a number of my own definition which, while still an improper application of the phrase, I refer to as “liquid net worth”. This latter number is the one I manage toward.

Oh, and for OP: Pre-tax gross is the only one that I think makes sense, and most people here, on MMM, and Reddit seem to use.
No sir, MMM uses POST tax savings rate as outlined by the following blogposts:

https://www.mrmoneymustache.com/2012/01 ... etirement/
http://www.mrmoneymustache.com/2015/01/ ... net-worth/

Personally I use MMM's method as it sounds more impressive :D :D .

Otherwise, I just use normal projections based on various savings rates/rates of returns/retirement dates to make sure I am within range of my goal. Savings rates dont hold any value outside of comparison with your past or future self as a means of holding yourself accountable.
Oy, I stand corrected!
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by dbr » Wed Feb 20, 2019 10:31 am

It is probably more direct and more meaningful to ask how many dollars a year you need to save to meet whatever goal than to try to express that as a fraction of some other number that has a nebulous definition. Maybe blogs and articles that recommend savings rates are not the input one should be consulting. If one does consult such recommendation it is also necessary to understand not only the definition but how they arrive at the number they do.

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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by TierArtz » Wed Feb 20, 2019 10:35 am

I use Pre-Tax because a good bit of my % invested is pre-tax and withheld, and the impact of taxable investments, farm income, and pension make the tax withheld on my employer's pay statement almost meaningless. I don't mess with counting a 401(k) match because it does not show on my pay statement, and why in the heck would one not want to save more?

Just do as Klangfool suggests: each year, simply invest as many dollars as you spend. :D

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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by knowledge » Wed Feb 20, 2019 10:40 am

I track both, but I *think* about it in post-tax terms. Since there's not much you can do to control your income taxes, it doesn't feel correct to think of taxes as an expense. In practical terms, there's really no difference between the two rates, and they tack with each other, with a <5% difference between them. So, I guess the distinction is almost meaningless. (I may stop tracking both).

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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by Mr.Wu » Wed Feb 20, 2019 10:42 am

There is no consensus. But I personally prefer pretax basis because you can explicitly show the % of tax together with % saving.

Further, anyone knows how company matching on 401k contribution should be reflected in % of income saved calculation?

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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by michaeljc70 » Wed Feb 20, 2019 10:48 am

I agree there is no consensus. I like to look at post-tax because the government gets paid before I do. Of course, a 401k would ultimately be pre-tax. Your tax situation could vary vastly from someone making the same $$$$s depending on deductions, credits, kids, state taxes, etc. It also gives a more optimistic/realistic number as in reality, you cannot save your FICA or required taxes.

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Re: On this Forum, is X% of Income Saved Pre or Post Tax?

Post by monkeydluffy » Wed Feb 20, 2019 11:02 am

Grogs wrote:
Wed Feb 20, 2019 6:21 am
You have to remember that SS is a progressive system though. If you're not a high earner, you'll get a higher percentage. Someone around the 2nd bend point (around 70k/yr average) would get around 40% of salary, and someone near minimum wage would be approaching 90%. If this is a group of public-sector employees making fairly modest salaries, the bonus over SS might not be all that great. There's also no mention of inflation adjustment, so after 20 years that pension that was providing 80% of salary initially may only be 50% in real terms.
Just checked. There is COLA that's tied to the CPI with 2% maximum. No COLA bank.

The Wizard
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by The Wizard » Wed Feb 20, 2019 11:11 am

The percentage is pre-tax but including any employer match.
So if your stated salary is $100k per year and your employer puts $3000 additional into your 401(k) or 403(b) this year on top of your own contribution, then the denominator is $103,000...
Attempted new signature...

longinvest
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by longinvest » Wed Feb 20, 2019 2:50 pm

Kennedy wrote:
Tue Feb 19, 2019 6:32 pm
I see references on this forum to people who save a certain percentage of their income (30% of income, etc.). Is that generally understood to be pre-tax or post-tax, or is there not a general understanding when someone makes such a claim on this forum?
Instead of an arbitrary fixed X% savings rate, I prefer a Variable Savings Rate (pre-tax) that adapts to my situation and to the size of my portfolio over time.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

UpperNwGuy
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by UpperNwGuy » Wed Feb 20, 2019 3:20 pm

Pre-tax, of course.

Traveler
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by Traveler » Wed Feb 20, 2019 8:05 pm

I do pre-tax and also include employer contributions in the numerator and denominator. I'm not sure how to do post tax because some savings is pre-tax. Seems like a lot of work to get to an accurate number and then it doesn't have much meaning.

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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by KyleAAA » Wed Feb 20, 2019 8:14 pm

Pre-tax is a lot easier. I won't know my post-tax income until I do my taxes every year, but I always know my pre-tax number off the top of my head.

KlangFool
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by KlangFool » Wed Feb 20, 2019 8:19 pm

OP,

I save 1 year of my current annual expense every year. I do not save based on X% of income.

KlangFool

Olemiss540
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by Olemiss540 » Wed Feb 20, 2019 8:23 pm

KlangFool wrote:
Wed Feb 20, 2019 8:19 pm
OP,

I save 1 year of my current annual expense every year. I do not save based on X% of income.

KlangFool
Wouldn't that be saving 50% of pretax income? So wouldn't you recommend saving 50% of pretax income every year?
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

KlangFool
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by KlangFool » Wed Feb 20, 2019 8:36 pm

Olemiss540 wrote:
Wed Feb 20, 2019 8:23 pm
KlangFool wrote:
Wed Feb 20, 2019 8:19 pm
OP,

I save 1 year of my current annual expense every year. I do not save based on X% of income.

KlangFool
Wouldn't that be saving 50% of pretax income? So wouldn't you recommend saving 50% of pretax income every year?
Olemiss540,

No. I do not consider taxes as an expense.

Gross income = taxes (Federal + State+ FICA+ Medicare) + annual expense + savings

I use this saving rate because my financial goal is Financially Independence.

KlangFool

Olemiss540
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by Olemiss540 » Wed Feb 20, 2019 10:37 pm

KlangFool wrote:
Wed Feb 20, 2019 8:36 pm
Olemiss540 wrote:
Wed Feb 20, 2019 8:23 pm
KlangFool wrote:
Wed Feb 20, 2019 8:19 pm
OP,

I save 1 year of my current annual expense every year. I do not save based on X% of income.

KlangFool
Wouldn't that be saving 50% of pretax income? So wouldn't you recommend saving 50% of pretax income every year?
Olemiss540,

No. I do not consider taxes as an expense.

Gross income = taxes (Federal + State+ FICA+ Medicare) + annual expense + savings

I use this saving rate because my financial goal is Financially Independence.

KlangFool
Got it. So you recommend saving 50% of post tax income. :D
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

KlangFool
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Re: On this Forum, is X% of Income Saved Pre-Tax or Post-Tax?

Post by KlangFool » Wed Feb 20, 2019 11:08 pm

Olemiss540 wrote:
Wed Feb 20, 2019 10:37 pm
KlangFool wrote:
Wed Feb 20, 2019 8:36 pm
Olemiss540 wrote:
Wed Feb 20, 2019 8:23 pm
KlangFool wrote:
Wed Feb 20, 2019 8:19 pm
OP,

I save 1 year of my current annual expense every year. I do not save based on X% of income.

KlangFool
Wouldn't that be saving 50% of pretax income? So wouldn't you recommend saving 50% of pretax income every year?
Olemiss540,

No. I do not consider taxes as an expense.

Gross income = taxes (Federal + State+ FICA+ Medicare) + annual expense + savings

I use this saving rate because my financial goal is Financially Independence.

KlangFool
Got it. So you recommend saving 50% of post tax income. :D
Olemiss540,

No, I recommend saving 100% of annual expense every year. It may or may not equal to 50% of post-tax income. For example, I can spend up to 6+K of medical expense via HSA. HSA is pre-tax.

Pre-tax, post-tax and whatever income is subjected to manipulation. And, it is meaningless in the context of FI. The goal is to reach the FI portfolio of 25X current annual expense. Quoting your saving rate in term of annual expense makes the most sense.

KlangFool

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