How to divide up savings if you can't save 20%

[disneysteve]

I think that is a good plan. You will take advantage of the full match at your wife's job. You will be funding your EF. Then you will be saving additional money for retirement and setting some aside for other needs.

[Guest]

When doing the numbers on how much I think we can save, I realize I was making a mistake. I was calculating based on our monthly bring-home. So far so good.

However, we get paid every 2 weeks. It just so happens that we get paid every week. Me one week, my wife the next. Some months one of get paid 3 times. Well averaging that out over 12 months gives me a whole lot more room to save than I originally thought. I was basically figuring it out before not taking into account 4 whole paychecks.

So we do our budget on a monthly basis. I found this helps us get ahead because we dont think about that extra check we get some months. It is just that, extra. (See I even forgot about it when I was planning our savings).

So families that get paid every 2 weeks, how do you budget, and how do you plan out your savings?

The way I figure it, we can add another ~7% to savings with those 4 checks.

[jIM_Ohio]

Honestly, I am going to say that there are people out there who cannot afford to save for retirement [yet]. Yep: Black & white: cannot afford to save for retirement. I am thinking right now of people who are just beginning their work life, who have no means of support besides their own low wage work, who have no 401K or other plan offered through their work, who perhaps do not even own a car, whose housing, though they may live in an urban or rural hell-hole, costs them a large portion of their wages, who may be eligible for foodstamps, who may be 17- 21 years old.... Go ahead and finish out the bleakest picture in your own mind.

Anyway, there are people who live so close to the bone that it is very unlikely they can presently save beyond what sustains them for the month, plus maybe a few dollars to stash away toward the purchase of a bicycle (forget a car). The closer one is to that kind of scenario, the less likely they would be able to save for retirement/old age. Getting to the point where they can save for something other than tomorrow's (or next month's) need is a goal to work toward. The further away from that bleak scenario one gets, the more likely one can actually set aside some little bit for retirement.

I don't mean to be contrary. I'm just feeling aware of how little some people start off with in their first years. Thus there could be someone who is able to not spend 6% of her check, yet I would not be telling her to put it in a retirement account. I might be telling her to save it for uniforms and school supplies she will need for the community college nursing school, or for a bus ticket to another town go move in with her sister who says there is better work there.

If someone is this destitute, social security can probably replace close to 75-100% of their income in retirement.

[jIM_Ohio]

So doing the numbers tonight, I THINK we have roughly 10-12% we can save right now (could be more). I just checked our 403b/401k docs and it looks like my wife's company contributes 3% of her income period whether she contributes or not. Then they match 50% up to 6% (I think I said 10 earlier but was incorrect). So we are going to put 6% in her 403b to get the match, plus her employee will be matching 50% of that and depositing 3% on top of that.

My employer does no matching whatsoever.

So this is actually only about 3% of our total income that we are contributing. (We both make the same amount). Where should the other ~7-9% go? Assuming we can afford 9 more percent I would think we should put the rest in to starting an EF. After that is maxed out, get 10% into retirement and the other ~2% into a general savings bucket.

What do you think?

If you like "absolute" numbers, a 401k is a good place to start (or 403b) because money goes in pre-tax, so MORE money is in account.

If you use a Roth, that is post tax, so it might be more money, depending on situation... meaning 10k in a 401k is the SAME as $7500 in a Roth if you are in 25% tax bracket

If you want to plan and do math, you need to see if Roth is better... but if you can put 9% into a 401k, its not the same thing as 9% to a Roth.

There is a thread on another page of forum here

http://www.savingadvice.com/forums/investing-banking/50669-questionaire-people-starting-retirement-planning.html

If gives some questions to ask yourself...

If you are making a 401k vs Roth decision, you need to know some basics about taxes (like tax brackets, filing status and percentages) so you have a basic idea of how taxes are calculated (w-2 income, minus deductions, calculate tax owed, plus credits etc...) so you can decide if the Roth makes sense, or if the current tax deductions (from 401k) make sense.

I generally suggest

401k up to match
then either
Roth in 15% bracket
or 401k in 25% tax bracket (meaning as long as you are in 25% bracket, use the 401k deduction as much as possible)
then use Roth once 401k has reduced you to 15% bracket

This way you can put $10,000 into Roth being taxed at 15%, and take the money out of Roth at 25% bracket, saving you money (if you put money into Roth in a low bracket, and take it out in a higher bracket, that is best way to use it).

[disneysteve]

If someone is this destitute, social security can probably replace close to 75-100% of their income in retirement.

True. Isn't that why SS was created - to be a safety net for those who couldn't otherwise afford to support themselves in retirement.

[jIM_Ohio]

True. Isn't that why SS was created - to be a safety net for those who couldn't otherwise afford to support themselves in retirement.

Not sure WHY SS was created- I believe it had more to do with being a disability system and fallback insurance plan...

the fact so many people rely on it as their only source of income is just idiotic- its not up to government to have its retirees living above the poverty line.

[Guest]

If you like "absolute" numbers, a 401k is a good place to start (or 403b) because money goes in pre-tax, so MORE money is in account.

If you use a Roth, that is post tax, so it might be more money, depending on situation... meaning 10k in a 401k is the SAME as $7500 in a Roth if you are in 25% tax bracket

If you want to plan and do math, you need to see if Roth is better... but if you can put 9% into a 401k, its not the same thing as 9% to a Roth.

There is a thread on another page of forum here

If gives some questions to ask yourself...

If you are making a 401k vs Roth decision, you need to know some basics about taxes (like tax brackets, filing status and percentages) so you have a basic idea of how taxes are calculated (w-2 income, minus deductions, calculate tax owed, plus credits etc...) so you can decide if the Roth makes sense, or if the current tax deductions (from 401k) make sense.

I generally suggest

401k up to match
then either
Roth in 15% bracket
or 401k in 25% tax bracket (meaning as long as you are in 25% bracket, use the 401k deduction as much as possible)
then use Roth once 401k has reduced you to 15% bracket

This way you can put $10,000 into Roth being taxed at 15%, and take the money out of Roth at 25% bracket, saving you money (if you put money into Roth in a low bracket, and take it out in a higher bracket, that is best way to use it).

So I am guessing if you are in the 28% bracket you should just focus on 401k?

[jIM_Ohio]

So I am guessing if you are in the 28% bracket you should just focus on 401k?

The Roth is phased out in middle (low end?) of 28% bracket when I last looked, so YES to your question for two reasons

1) 28% bracket now is probably higher than retirement tax bracket with limited info given (if you have stock options or something now in 28% bracket which could make you rich in retirement, then this bullet point is not true).

2) The Roth is not fully usable at all ranges of 28% bracket (at top end of bracket the Roth is 100% phased out last I looked).