Are you investing more or less than you thought?

Just about every personal finance guru has an opinion on how much you should contribute to retirement. Their suggestions usually falls between 10% and 20% of your gross income. For as long as I’ve been at this personal finance thing (since 2007), I’ve decided to contribute no less than 15%.

Here’s what my retirement contributions have looked like so far for 2014…

401K: 10% of gross income

Roth IRA: $5,500 (which is 6.7% of gross income).

As our income has increased, we’ve been able to send more discretionary income to retirement, (I started with 5% contributions in 2007).

There’s something missing though, I also get a full 5% match from  my employer for my 401k contributions. So, although I am personally only sacrificing 17% of my pay for retirement, I’m really getting 22% socked away for future me.

So my question is simple:

When the talking heads state one should be saving 15% towards retirement, are they factoring in the company match? Or another way to think about it, would you say I am investing 17% towards retirement, or 22%? 

It’s an interesting question, one that could literally mean the difference of a $1,000,000+ come retirement depending on how one decides to proceed.

When I asked this question on twitter, I got a 50/50 split. Half said they count the match towards their goal, while the other half said they pretend like the match doesn’t exist and it’s just a bonus.

15 thoughts on “Are you investing more or less than you thought?

  1. Since personal finance is so individual and everyone has their own priorities, obligations and such, I think this is probably a question that will get both answers!

    I contribute 12%, with a company match of 35% up to 6%. (I’m only 23, so my contributions will increase with time as well.) I also contribute $5500 to max my Roth IRA every year, which puts me at a total contribution of 22%, or 24% with employer match. I guess either way I’m ahead of the game!

  2. See, Ninja. When you’re away and not writing anything, people complain about your absence. When you’re back and writing something, only one reply so far.

    This argument sounds like putting the cart before the horse. Your goal should be to have a sufficient amount put away for retirement to cover your expenses and then some, not to put away a certain percentage of your income. If you retire with $500K to your name, what difference does it make if 85% of that amount came from your own contributions and 15% from an employer match? Clearly Ninja is putting 22% of his salary towards retirement, and only time will tell if that is sufficient for his retirement needs.

  3. I don’t use percentages as a model, but rather contribute the max amount allowed for my 401k and my Roth IRA. I think the percentage model is a bit warped, as it depends on the size of your salary. 15% of $150k is different than 20% of $75k or 25% of $50k, etc. Either way, it’s definitely important to start early and to invest as much as your budget allows (or at least enough to meet your future needs).

  4. Well, I don’t count it towards ‘my’ efforts for retirement savings and I had no idea that people did that. I guess maybe you could if you’re completely vested.
    This is probably weird but I get an AWESOME match from my work (10% of my base salary whether I contribute or not) so I just add that in my head to my salary. So, I’m interviewing for another position and I have included that extra pay in my ‘total compensation’ figure like a bonus when discussing currently pay.

  5. I use both… well not now since my employer has changed.

    My previous employer provided a 401(k) in which they matched 100% of an employees first 3% of salary contributed and then 50% of the next 2% contributed for a total match of 4% if 5% or more was contributed. In addition they also contributed another 4-8% depending on the employees age bracket. So I contributed 5% and my employer contributed 8% for a total of 13% contribution. I would state that I contribute 5% to my 401(k) but my employer contributes 8% if anyone asked. When analyzing my financials, I used the 13% when calculating my savings rate, though this brought my household budget up to 108% of income because of the match – so I had a new income category of free money.

    My current employer is a little different, they match 100% of my first 6% but not until I have a year of service in place. They also provide a pension at no cost to me. I right now contribute 6% and report 6% since I have no matching funds, but I am trying to figure out how to handle the pension. I can calculate what my monthly income from the pension will be upon retirement, but how do I reflect that on my current day financials?

  6. I don’t count any matching or profit sharing until I’m fully vested, which took five years. My company has typically provided a 6% profit share that goes into a fund over which I had no control and had nothing to do with my personal contributions to a 401K. But that’s up in the air now due to some issues stemming from a change in ownership. (former partner making life difficult for the guy who bought him out.)

    My husband sees it differently and puts in slightly more than it takes to get the match so he’s at 10% (7% from him and 3% from his company.) But I’m much more paranoid about saving enough for retirement than he is.

  7. Like you, Ninja, I get the 5% match. When I started my job, the most I was allowed to contribute was 15%, so I always made that my goal. By the time I got there, they lifted the 15% and the limit became the $17,500 of personal contributions.

    I don’t factor in the 5% into my budgeting and am happy enough to see the largely inflated contribution to my TSP every 2 weeks because of the matching funds.

  8. I don’t count it.

    I think Financial advisers are talking about the total amount contributed[(example:15% employee + 15%employer), or (20% employee + 0% employer)]. The reason why I think this is because different employers contribute different amounts, while some don’t contribute anything. It is easier for them to make a recommendation based on the total %.

  9. I don’t really look at % anymore. I will max out my 401K and ROTH IRA this year. My hubby will max out his Traditional IRA (he doesn’t have an employer sponsored work plan). As far as investing more or less than I thought, I think we’re investing more. Investing is exciting though. I love watching my money grow. Especially when I see the dividends.

  10. I think the point of investing 15% of your pay into retirement is more for that you are now living on 85%. If you counted the match in your withholding plan, you’d live on 90% of your pay. Thus you’d need a larger nest egg to support yourself in retirement. For example, take a 50k annual salary means that they are living on $45k instead of $42.5k a year. The extra 2.5k a year means that you need an additional $80,000 in retirement funds to support your live style. (Example was not adjusted for potential inflation)

    So I would say that you are living on 83% but saving 22% towards retirement. 🙂

  11. The employer match is part of your total compensation, so you have to add the company match to your savings and your earnings.

    (savings + co. match)/(base salary + co. match)

    In your case it produces a savings rate of 20.5%

  12. Dave Ramsey, who says to do 15% of gross income, does not include matches, and does not factor in social security or potential pensions. It is “gravy.”

    • The gravy perception is what allows people to justify spending ‘windfalls’ like tax returns, bonuses and the $200 from Aunt Mable. Factor all your sources of income and save accordingly.

  13. I factor in the company match. I contribute 9.5% to a pension, recieve 9.5% match. Its a good deal.

    Having said that I also contribute another $3,000 a year to RRSP (Canadian) because I didn’t save enough when I was younger.

  14. I used to follow the recommended 10-15% but now I put in the Max in my 401K and have started adding to a Roth IRA that I hope to start maxing out in 2015 or 2016. My current company matches 4% during the year and at the end of the year we can also get a 15% lump contribution to our 401K as well.

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