# Savings Rate

I just calculated our savings rate, and once you include our employer matches, we’re at 24.8% while paying down debt.  Once that debt is gone, we’ll be up to 44%, not including what we can further save once our daughter is out of daycare and into the public school system (that would take us up to 52.8%).  I also know that if I ran the numbers on a yearly rate, we’d be a lot higher since Dad gets paid bi-weekly, and those paychecks (and contributions) are not included (and most of those paychecks go straight to paying down debt since they’re “extra money” in the budget).

That’s a decently high savings rate – Dad’s employer match is super excellent, he puts in 10% to get the max match of 8.8%, I get 100% matching up to 4%.  We’re only putting the minimums for matching into our retirement accounts right now while we pay off debt.  I don’t think that it’s enough to retire on though.  I’m a bit conservative in the amount we need to actually retire – I’d rather be a little conservative and leave money to Daughter Person than run out!

According to MMM our savings rate sans debt is high enough for us to retire in about 20 years – and our goal is preferably 10, no later than 15, so we’re making a decent dent, but we’ll need to get up into the 65% savings rate to really do it.  We’re going to get an artificial boost to savings rate automatically as more of our mortgage goes to principal over the years.  And we plan on moving to a lower cost of living area closer to retirement, so some funds will be freed up with lower housing costs as well.  However, we know that health insurance will add to our expenses once we retire.  Right now, we’re lucky enough to get it free and clear.

I’d rather be in a situation where I don’t have to worry about a safe withdrawal rate, and can instead leave the principle alone and live off dividends, interest, gains, etc.  I’m willing to consider a 2-3% withdrawal rate, but not much higher.

The formula I used for savings rate (all monthly values):

Savings Rate = (retirement contributions + employer match contributions + savings + mortgage principal)/(net income + retirement contributions + employer match contributions)

## 4 thoughts on “Savings Rate”

1. Done by Forty

While you’re paying off debt, I think that’s a great savings rate. I completely agree with your strategy to contribute up to the full match, but to stop there and put any extra funds towards debt.

I like the conservative approach with your SWR, too: though I think we’ll work from a 4% assumption. Your figures will be a lot safer than ours though. 🙂

1. Mom Post author

If we didn’t contribute the “full” match, we’d basically be giving away free money – and that’s something that I just can’t bring myself to do. But the way Dad’s match is set up, he has to contribute 10% of his salary to get the full match (it’s a percentage based on what percentage he contributes). And he has the (slightly) larger salary. I did consider reducing our contributions temporarily, but I did that on mine for one month (reduced by 1%), and after taxes were taken out, only \$60 was “extra” in my paycheck, and we can get that by not eating out, so we increased it back to the full match again.

1. Mom Post author

Savings rate has a dual-edge to it though. If you’re saving more, you’re spending less, so you need less to live on, which brings retirement quicker. Rate of return is just one value, and if you don’t reduce your spending, you still need to come up with a larger amount to cover that increased spending.