How much am I really investing?

Dave, Suze, Jim

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 15% is my lucky number.

Here’s what my retirement contributions looked like for 2009…

401K: 5% of gross income

Roth IRA: $5,000 (which was 10% of gross income).

Boom. Done. It really was that easy. Between a 5% 401K contribution and maxing out my Roth IRA, I met my 15% goal. There’s something missing though, I also get up to 5% of my 401K contributions matched. So what that really means was I had a total of 20% of my gross income invested for retirement in 2009.

Do you see the issue? Did I unintentionally invest more than I wanted? It’s definitely possible, so I need your help. How do you answer the following question…

Do you count your employer match as part of your total investment contribution?

What satisfies the 15% goal? Is it simply what I contribute, or should I be considering the match as well? When you look at my 2009 contributions above, do you consider that a 15% or a 20% investment?

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.

38 thoughts on “How much am I really investing?”

  1. I don’t invest at all, but I would probably pretend the match doesn’t exist too, since the match can go up, down, and all around. Then again, you work for the government, which happens to own a printing press, so whateva.

  2. If you’ve actually run calculations that say “in order to retire by age y , I need to save x % of my salary”, I don’t see how you wouldn’t count the match in the equation. That being said, it never hurts to save more if you can afford it, and not factoring in the match may be a nice psychological trick to aid in saving extra.

  3. I have to admit, the thought of my employer’s match contribution never even crossed my mind, so it looks like I’m putting more aside for retirement than I actually thought I was… SA-WEET!!!

  4. I wouldn’t include it as part of my savings goal when I budget. If I wanted to save 20%, I would save 20% from my checks. The employer contribution would be above an beyond my budgeted savings.

    I would consider the employer contribution when thinking about the ‘full package’ your employer is offering vs. another job offer – but not with respect to my personal savings budget.

    Good post!

  5. I wouldn’t count it, you may not always be at this job. If there comes a time you can’t put away as much as you’re doing now then the decrease in savings won’t hurt quite as much.

  6. My employer more than matches my pension contribution – for every $1 I contribute, they contribute $1.26. My pension plan requires a 7% contribution from the employee, so all together it equals 15.8% into the pension plan.

    I’ve never included the employer portion of the pension contribution in my percentage saved – just my own 7% contribution. I contribute outside of my pension plan too (towards my retirement) – I believe my total retirement contribution (not including employer matching) would be about 9%.

  7. I would count it because it’s your money. The real question is why you feel like you need to follow some percentage of your income? If you are comfortable saving 20%, then save 20%. If you can save 30% and still afford everything you want today, then you can do that too. If you wanna save 40%, give me 40%, and live off 20%, that’s fine as well.

    • Realistically, we could be investing like 40% of our gross income, but I think everyone needs to determine at what point are the focusing too much on retirement, and not enough on short to medium term savings. 15% in retirement should afford us a comfortable lifestyle, seeing that we started investing at such a young age (compound interest is awesome), but keeping it at 15% (and not higher) will also provide more income now for things like saving for a house, vacations, future car purchases, etc.

  8. Don’t count the match, especially if you have to contribute 5% to get the 5% match. If you reduce your contribution then your match contribution would go down as well and you’d be missing out on free money. Don’t you like free money!?!

  9. Let’s say you had $50,000 to put towards a down payment on a house, but the seller required another $10,000 that your parents decided to gift you. How much of your money have you put down – $50,000 or $60,000?

    But the question is really trivial, as Mr. Thousandaire implies. Put away as much as you can so that you still have enough to meet your daily expenses. At your age, you have many years to adjust your contributions and savings if they’re insufficient. (At my age, 62, the question is more urgent. But even so, I have options – such as working a few years longer, or scaling back my expenses, or purchasing an annuity.)

  10. Once I became vested, I counted my employer contributions. Before then, no.

    I just save as much as I can for when I do work, and the main thing for me is to keep my expenses in check.

    I definitely agree with saving at least 10%, preferably more if you can swing it. Everyone’s situation is so different.

  11. I do not count employer match (extra 6%).

    My wife and I are both contributing $5K to our Roth IRAs. I contribute fully to my 401(k) and she contributes to her pension fund.

    I’d say we are contributing about 25% of our gross income to retirement out of pocket.

  12. I would count it if you are vested in the plan. I remember the good old days when I used to get an employer match.

  13. Currently, I count my employer’s contribution simply because if I didn’t, my less than 2% contribution would look awfully pathetic. The 8% from my employer puts me to almost 10%. Yeah!

  14. I look at an employers match as an immediate return on investment because that money only enters my account if I chose to place my money in that account. You are saving 5% of your money, the 5% from your employer is an automatic return, you don’t consider any investment returns as part of your savings percent, why would you consider your employers match as part of that percentage?

  15. Here’s another “how much to invest” question:

    If you’ve maxed out your 401(k) contribution for the year (of which employer match doesn’t count), but haven’t even met a 15% savings goal yet, where should you put the money?

    • That’s not hard. The usual recommendation is: 401(k) to the match, then Roth IRA to the maximum, then 401(k) to the maximum thereafter, then taxable investments after that.

  16. I would look at the employer contribution as “a gift”.

    In other words I’d make my 15% target out of my actual earnings. That way I know that I have made my target figure no matter what. The employer match is a bonus. A kind of “passive income” if you will.

  17. Yes, I count the match. Ninja, I consider YOUR retirement contributions to be 16.7%!! Not 15% and not 20%.

    So the caveat is % of what? I take it as a percentage of total compensation, not just gross income alone. Total compensation includes other employer provided benefits.

    Say Ninja does $5k in Roth, $2.5k in 401k, and $2.5k in 401k matching. That’s $10k in total retirement contributions.

    Say Ninja’s employer provided a $7500 annual benefit. Then Ninja’s total compensation is really the $50k salary plus $7.5k benefit plus $2.5k matching for a total of $60k.

    Now the $10k retirement contribution is only 16.7% of his total compensation.

  18. I only count my actual contributions and see my employer match as investment growth, but it doesn’t matter much for us since we invest more than a set percentage.

    Our monthly spending is in this order:
    1. Auto-contribute 6% to 401k which is matched 100% up to 6%
    2. Auto-contribute to Roth IRA of $300 a month and then we manually put in the other $1400 as we see fit – $5000 a year
    3. Contribute at least $200 a month into high dividend stocks via Scottrade.
    4. Auto pension contribution of about $200 a month.
    5. Bills
    6. Emergency Fund – $500 a month
    7. Tax Fund – $300 a month
    8. Home and Auto Fund – $500 a month
    9. Vacation Fund – $250 a month
    10. Fun Money (both accounts) – $250 total a month
    11. Split any remainder – 50% to savings (emergency fund, stocks, or mortgage overpayment), 25% to vacation account, 12.5% to each fun money account.

    Hope this helps!

  19. I’ve been mulling over the same. My company is about to start contributing up to 9% to our 401k’s, and I was wondering should I continue to contribute 6% myself or bump up my contribution to 10% as I had planned before the 9% match came into play? Also, I didn’t know that anyone counted the Roth IRAs as part of the 15%.

  20. I would definitely take full advantage of the match, especially in times like these when many employers are cutting back on their contributions. For one thing, if the choices in your 401(k) are not optimal (e.g., loaded funds and/or funds with high expense ratios), the match can help offset these expenses tax-deferred.

    A Roth on the other hand gives you the benefit of tax-free growth and the freedom to choose whatever investments you want.

  21. I personally don’t count it as part of my percentage, but I also don’t contribute the max of the “suggested range.” If you want to say that 10-20% is recommended, you can always count your 10% 401k contribution, your 5% into your Roth as a 15% retirement contribution. Middle of the road. The 5% you get matched just happens to bump you up to the high end with no effort of your own. I know that’s overly simplistic, but it’s how I think about it.

    Personally I am contributing 8% to my 401k now and getting a 50% match, so that realistically bumps it up to 12% (once vested). However, I am currently contributing low while paying off debt. Once debt is paid off, I will be sending it to my Roth and bumping this up to 10% to get my full match from my employer (the 50% match of my contribution then equaling 5% of my income).

  22. My employer does not match (boo!) so I don’t contribute to my retirement through work. If my employer did match, however, I kind of think I wouldn’t count it and instead pretend it’s not there, for a nice little “extra”. But you have a point about needing shorter-term savings as well. And since we’re putting all our financial effort toward getting out of debt, I can’t tell you for sure what we would do, but I think it makes more sense to just determine your needs in various categories and do your best to meet them, regardless of what the percentage is.

    But… ask me again in a year or two when we’ll be more focused on saving for retirement.

  23. Even after reading everyone’s comments, I still don’t get why you wouldn’t count it! It’s like free money. At my last job, if I put in 5%, they put in 10%, so in total I still got 15% of my salary put into an account. Does it make a difference if it was 7.5 & 7.5? No, it’s still 15% total, and if that’s your goal, then it’s been met. It’s not as though your employer would later decide to take the money back, so I don’t get why being vested makes a difference. I wouldn’t count my employer’s contributions if NOT being vested means I wouldn’t get them, but once it’s “mine” by being in MY account, I say it counts! 😛

  24. When the employer decides to hire you, they’ve already factored in the amount of money you are going to cost them in their budget, which includes your salary, health benefits, 401k match, etc. So, technically, that match is my money to start with, and by jove I’ll not let anybody tell me otherwise!!! 🙂

  25. So to tack onto Ninja’s question, if you were to consider the employer match to your contribution, would you then also add a premium more making contributions to a Roth IRA or Roth 401K as opposed to an IRA or 401K?

    For example, if you contributed 15% to a Roth IRA and a Roth 401K and you’re tax rate was 25%, would you also consider your savings rate to be 18.75%?

  26. I don’t count the match when figuring my % saved. (I also budget 15% of gross, BTW). I do count the funds contributed to 401K, Roth401K and Roth – since they are all earmarked for retirement. I figure the match is like a bonus that I’ll spend when I retire LOL.)

    In addition to the above, I save almost 10% for midterm savings (Efund – cash and savings bonds, Car fund – repairs and new to me car in the future, House fund – repairs and upgrades and a bit of after tax investment in the company ESPP).

    I also give to charity – 5% now, but that’s going up to 10% eventually when the budget has a bit more ‘wiggle room’.

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