Ok first of all sorry for the blunt title post. I know it’s not “easy” – I am just fortunate enough to feel this way. The reason I am asking is because we don’t really have much savings every year, only $10-20K saved this year because our spending is high. However, if I’m doing my calculations right, we’re ok??? Doesn’t seem right. Our personal investment and bank accounts are not growing much. Only retirement accounts.
Here’s the breakdown. Household income: $250K, after state and fed taxes that’s around $170K, and 30% of that is $51,000.
So according to a lot of online sources we should try to save $51K for the future. But we already put maximum $ into Roth and 401K （it fits our budget). That’s $23,500 plus $7,000 then times two or $61,000 for the both of us. So JUST from Roth and 401K alone we are already saving more than 30%!
Our take home pay is around $110K. Less the Roth that’s $96K and that’s averaging $8000 per month take home after all benefits and taxes and retirement contributions. We spend around $5-6000 per month altogether, before vacations and unnecessary purchases. That gives roughly $24-36K savings before vacations, then take off $10-15K for vacations and unnecessary purchases (like games or luxury items) and we save around $10-20K or so every year.
Do we need to save more? Why does 10-20K feel so little. When kids college funds are $200K. We haven’t started the 529 contributions yet (child is not yet born). I guess I’m just confused what is appropriate for our level of income right now. Are we too heavy on the retirement contributions? We thought that was best for us long term.
30% of income as savings.. including 401K??? Seems too low?
byu/BigBaozo inpersonalfinance
Posted by BigBaozo
5 Comments
That’s a good savings rate; I know plenty of people making $250k who save less. You didn’t give us a budget, so it’s hard to guess at what you could cut.
Do you have an emergency fund? If yes, I’d say you’re doing great.
At the same time I’m also in a situation not unlike your own and always feel like I could and should be saving more.
Depends on your goals and ages. You’re heavy on retirement but that’s not a bad thing. You may be on track to either retire early or take on less stressful work in your elder ages.
You seem to be able to afford the luxury you desire (vacations, etc) so you’re not hurting yourself by saving lots.
What are the non-retirement savings for? House? Car? Emergency fund?
Once your emergency fund is set you should put any extra untargetted savings into the 529 or even open up a supplemental taxable brokerage for extra wealth growth. There’s little use for holding gobs of spare cash in a bank account.
If you’re going to use post-tax numbers, then your 401k contributions don’t contribute to the savings rate.
For me, I don’t care what percentage of income my retirement contributions take, my goal is to max them.
If you are maxing your 401k, then your taxable income is $203k after the 401k; if you are saying state and local tax is $80k on top of that, I’m assuming your math is wrong because you wouldn’t be paying $80k in taxes. So somewhere in there your math isn’t mathing.
If you are saying your net income is $170k after taxes **and your 401k contributions** then you are double-counting your 401k in your savings rate. That would mean (in your calculation) your savings rate would need to be $51k, minus your $14k Roth IRA, would leave $37k that you would be saving outside of retirement.
But overall I don’t understand how your taxes are so high. Do you get a refund?
What are your short term and long term financial goals? Do you have a budget?