What are the correct percentages for savings?

[hopefulfirefly]

After June of '09, we will have significant debt paid off. My dh & I recently got married and we sold his house for a loss (it was the best financial decision available due to the market in MI) and we've been paying that loss (25K) off. It will be paid off in June. We hardly have any money each month that we can save (aside from what we put into 401K), so once we have the old house debt paid off, we will have a good chunk of money at our disposal to save each month.

We want to max out our roth's and also contribute to 401K, we plan to save 15% of our income for retirment. Is this an acceptable goal or should it be higher? (I'm 25 and dh is 33)

After that-how should we break up our savings percentages? We only have a few thousand dollars in an EF, so we want to be sure we have a 6 month EF built up. Should we focus only on saving for the EF and not save in other long term savings.....or, should we simultaneously save for long term while building up EF? I feel like we shouldn't neglect a good opportunity to put money into the market ($ that we don't need for 10 years or so). But, on the other hand I wonder if it's wrong to be saving "at risk" money when we dont' have a fully stocked EF?

Thanks for your help!

[jIM_Ohio]

My general advice is save 20% of gross income.
15% into retirement accounts and 5% into EF, short and mid term savings. This 5% should allow things like cars to be paid in cash without depleting a 6 month EF.

Looking at your ages I think this is a good plan for you, assuming you invest the money (at least 60% of it) in equites. If you invest more conservatively, I would suggest thinking along lines of a 25% or 35% savings rate.

I would try to get taxable income below 65100 before contributing to Roth- meaning if taxable income is higher than this, use 401k until it reduces taxable income below the 65100 threshold.

$65100 is the top income in 15% tax bracket. Meaning that if you are less than this, you are paying 15% taxes on the Roth contributions. The $65101 dollar you make is taxed at 25%.

The Roth works best if your tax rate in withdraw is higher than it is now. Close to 75% of taxpayers earn less than $66100. Our gross income is 110k and our taxable income is about 63k.

[Fern]

I think most people would say you're doing well to contribute the max to your 401k and IRA, but if, say, you read a book, like the iconic The Millionnaire Next Door, the uber-savers save at least 20 or 25%.

Saving 6 months of expenses in your EF is generally a good rule of thumb, but particularly in this job climate of rising unemployment, you might do well to increase that to 9 or 12 months, just to be on the safe side. If one of you experience an unexpected layoff (and what layoff is ever expected?) it'll make things a lot easier.

[kork13]

I tend to agree with Jim--15% to retirement and 5% to shorter-term savings is pretty good. You'll see alot of people recommend at least 10% to retirement as a minimum. Really, it's one of those things that depends a great deal on your personal situation.

Because I'm living with roommates, my expenses are lower than they otherwise would be, so i'm able to save almost 1/3 of my income right now. Currently about 18% to retirement, plus almost 14% to building up an EF and for short- through long-term goals.

In the end, it depends on how intensely you want to save. I'm trying to build up from scratch, so i'm pretty heavy in it right now. Eventually, i'll probably settle in closer to about 15% retirement and 10% other. But again, that's what i'm comfortable with, and it's aiming me toward my goals.

So maybe the best way to decide is to make a baseline for yourself, say 15% retirement, 5% other, then try it out for a couple months, and increase them as you are comfortable with. Alternately, sit down and lay out your goals, what they'll cost, and figure out what you need to save based on that. It's imprecise at best, but it gives you an idea of what you're shooting for, and either of these will help you figure out what is good for you personally.