# Savings rate...



## cfriedberg (Mar 31, 2006)

Given all the expensive clothing purchases (mostly) that I read about on this site, and while I assume (maybe incorrectly) that given those often wrote-about purchases, the average AAAC members may earn more than the average wage earner, I was wondering in general, what percentage of pre-tax gross disposable income folks save? Given the abysmal savings rate in this country, I was curious as to whether AAAC members are not only more sartorially astute, but more financially astute as well.


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## familyman (Sep 9, 2005)

Between 401K, IRA's kids college funds and other investments we're between 40 and 50 percent. 
This is why I buy Oxxford from ebay. 
Choices.


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## Wayfarer (Mar 19, 2006)

Not to be a pain, but "pre-tax gross disposable income" is a bit oxymoronic as "disposable income" is defined as monies available, *after taxes* for saving and spending.

I've edited this six times now, and cannot put a percent on a number that cannot exist so am taking out gross figures. Sorry to all. I hear that the latest tax bill will allow high income earners to use the Roth IRA, and if that is true, we'll each be maxing our Roths (4k per person, increases in 2008 I think) this year too, and every year until they change that back to disallowing it.

As I've said before, becoming a millionare is simple, 15k for 20 years at 12% interest (average "market" return over last 50 years) and you'll have over a million. Most people just want their million next quarter, not the next quarter century. 

Do not forget though, that for data collection purposes, I do believe 401(k)/403(b), IRA, pension contributions, etc. do not count towards the "savings rate". I think technically that is only unsheltered, unspent money/investments.

Warmest regards


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## cfriedberg (Mar 31, 2006)

Wayfarer said:


> Not to be a pain, but "pre-tax gross disposable income" is a bit oxymoronic as "disposable income" is defined as monies available, *after taxes* for saving and spending.


True enough...



Wayfarer said:


> As I've said before, becoming a millionare is simple, 15k for 20 years at 12% interest (average "market" return over last 50 years) and you'll have over a million. Most people just want their million next quarter, not the next quarter century.


If your expectations are 12% per, prepare to be very disappointed. First that 12% figure is well above the 'average' as expressed by the S&P 500, by about 4%, second, that includes the greatest bull run in history - 90 through 99. Finally, I was really looking for the %age rather than figures that may insult anyone.


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## Wayfarer (Mar 19, 2006)

cfriedberg said:


> True enough...
> 
> If your expectations are 12% per, prepare to be very disappointed. First that 12% figure is well above the 'average' as expressed by the S&P 500, by about 4%, second, that includes the greatest bull run in history - 90 through 99. Finally, I was really looking for the %age rather than figures that may insult anyone.


The S&P is not "the market". If you want a more accurate index for that, please investigate the Wilshire 5k. I will go edit out my figures, I just found it quite impossible to give a percent of a number that cannot exist, i.e. gross pre-tax disposable income.

Warmest regards


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## cfriedberg (Mar 31, 2006)

Wayfarer said:


> The S&P is not "the market". If you want a more accurate index for that, please investigate the Wilshire 5k. I will go edit out my figures, I just found it quite impossible to give a percent of a number that cannot exist, i.e. gross pre-tax disposable income.
> 
> Warmest regards


The S&P 500 is 92% of the market, plus whether you compaire the Wilshire 5K, the Russell 3K or the S&P 500, the returns are within 50 bps of each other on an annualized basis - in any case, your 'average' figures are inflated. Furthermore, even if we take your 12%, for anyone to suggest this is something that should be expected in the future isn't rational. Why? Because the stock market cannot grow any faster than our overall economy over the long term - do you expect the U.S. economy to grow at even 2/3's that (nominal) over the long term? Of course not. I believe the 'market' - you define it - will give you 5-7% over the next full cycle - again - nominal. There are however, some publicly available funds that can beat that 

Furthermore, it is actually quite easy to give a savings _*rate*_ figure...say you earn 100K pre tax- you pay 35% in taxes leaving you 65K, you then put away 20K, well, that's 20% - easy - oh, and that's how the 'savings rate', which is currently the worst in 30 years, is how its basically calculated (with some adjustments by our govt of course).


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## Wayfarer (Mar 19, 2006)

*No pecker contest here.....*



cfriedberg said:


> The S&P 500 is 92% of the market, plus whether you compaire the Wilshire 5K, the Russell 3K or the S&P 500, the returns are within 50 bps of each other on an annualized basis - in any case, your 'average' figures are inflated. Furthermore, even if we take your 12%, for anyone to suggest this is something that should be expected in the future isn't rational. Why? Because the stock market cannot grow any faster than our overall economy over the long term - do you expect the U.S. economy to grow at even 2/3's that (nominal) over the long term? Of course not. I believe the 'market' - you define it - will give you 5-7% over the next full cycle - again - nominal. There are however, some publicly available funds that can beat that
> 
> Furthermore, it is actually quite easy to give a savings _*rate*_ figure...say you earn 100K pre tax- you pay 35% in taxes leaving you 65K, you then put away 20K, well, that's 20% - easy - oh, and that's how the 'savings rate', which is currently the worst in 30 years, is how its basically calculated (with some adjustments by our govt of course).


1) No such thing as "pre-tax gross disposable income" ergo, a percent of it cannot be computed. If you had said, "percent of gross income" or "percent of disposable income", perfect sense. You however, you did not, and acknowledged as such. No harm, no foul.

2) Do I really need to Google sources to support that "the market" has averaged 12% over time and that the Wilshire 5000 index reflects "the market"? Twelve percent is not "my figure", it is the one put forward by the experts, with data to back, as the average return over time for "the market".

I am not arguing over the fact the savings rate is low, in fact deplorable. Please do not waste any time on that. I was wondering if pension contributions, etc. was part of the rate or not. I actually wasted the time to go pull a text book off my book shelf from b-school. Pension, IRA, etc. contributions are included in the savings rate.

As a note for the interested reader, part of the reasons behind Japan's long term moribund economy was attributed to an overly *high* savings rate. Go figure.

Warmest regards


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## cfriedberg (Mar 31, 2006)

Who was arguing over the savings rate? I started this thread to see what the savings rate of forum members was?

Second, considering the 'market', as you define it as the Wilshire 5000, hasn't been in existence for 50 years, with all due respect, you are incorrect on your returns - you can search google as much as you like, but you should goto www.wilshire.com - the creators of the index and look it up. I don't know who your 'experts' are, but I'm glad I don't rely on them for investment advice, nor go around suggesting that "becoming a millionare is simple". To suggest that simply putting away 15K per year for 20 years and 'expecting' 12% 'interest' as you call it - well, not many people will retire on that. FYI, I don't recall starting this as an investment advice thread, but you quickly moved it there - are you in finance? A money manager perhaps? Financial advisor?

I simply started the post as a friendly curiousity, thank you familyman for realizing I simply meant percent of gross income and responded as such rather than nitpick.


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## BertieW (Jan 17, 2006)

To answer the original question, I save about 20 percent.


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## cfriedberg (Mar 31, 2006)

BertieW said:


> To answer the original question, I save about 20 percent.


Bertie,

Thanks for responding - and congrats, that's terrific.


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## Wayfarer (Mar 19, 2006)

cfriedberg said:


> Who was arguing over the savings rate? I started this thread to see what the savings rate of forum members was?
> 
> Second, considering the 'market', as you define it as the Wilshire 5000, hasn't been in existence for 50 years, with all due respect, you are incorrect on your returns - you can search google as much as you like, but you should goto www.wilshire.com - the creators of the index and look it up. I don't know who your 'experts' are, but I'm glad I don't rely on them for investment advice, nor go around suggesting that "becoming a millionare is simple". To suggest that simply putting away 15K per year for 20 years and 'expecting' 12% 'interest' as you call it - well, not many people will retire on that. FYI, I don't recall starting this as an investment advice thread, but you quickly moved it there - are you in finance? A money manager perhaps? Financial advisor?
> 
> I simply started the post as a friendly curiousity, thank you familyman for realizing I simply meant percent of gross income and responded as such rather than nitpick.


*sigh* Okay, I guess we have to do this. I did not say "the market" and the Wilshire 5k are statement equivalents. What I said was:



Wayfarer said:


> The S&P is not "the market". If you want a more accurate index for that, please investigate the Wilshire 5k.


What prompted me to say that was your claim of:



cfriedberg said:


> If your expectations are 12% per, prepare to be very disappointed. First that 12% figure is well above the 'average' as expressed by the S&P 500.


 It would seem to me you are implying the S&P 500 is an analogue to the market. Further, I never stated the Wilshire 5k has been in existence for 50 years. What I said was:


Wayfarer said:


> average "market" return over last 50 years


Now, I do claim that the Wilshire 5000 index is an analogue for "the market". It would seem I am not the only one, a quote from your own reference website at https://www.wilshire.com/Indexes/Broad/



> The Dow Jones Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. No other index comes close to offering its comprehensiveness.


I'm done here, sorry to stir up such ire.

Warmest regards

Edit: Oh yes, 20 years, 15k per year, compounded yearly at 12% = approx 1.2 mil, at 10% approx .945 mil. Simple yes. Easy no.


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## ksinc (May 30, 2005)

Our actual cash savings is running about 5% (not including IRA, 401k, or home appreciation). I skim 3% off the top straight to Emigrant Direct and then the rest is left overs from bonuses or extra savings from budgeted expenses, etc.


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## 16128 (Feb 8, 2005)

About 25-30%. Some of that goes into a work-related investment plan, some goes into savings and some goes into my husband's e-trade account, where he randomly buys shares based on what Ben Stein says.


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## Patrick06790 (Apr 10, 2005)

Zero. None. I spend what I earn in order to eat.

I now have enough clothes, fly rods, and other stuff, so I am going to experiment this summer with not buying anything and see if it is possible to save as a member of the "working poor," whatever that means.

I confidently expect to attain enlightenment. Levitation by Labor Day!


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## johnsamson (Sep 10, 2005)

Negative, I just keep drawing from my trust fund.


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## cfriedberg (Mar 31, 2006)

Wait, I think you've confused yourself. You wrote that you didn't say that the Wilshire 5K is the market, but you wrote
Originally Posted by *Wayfarer*
_The S&P is not "the market". If you want a more accurate index for that, please investigate the Wilshire 5k._

Seems to me that statement at the very least does at imply that the Wilshire 5K is a proxy for the market.

Then you say that you didn't suggest that the Wilshire 5K has a 12% return for the past 50 years, but that the 'market' does

Quote:
Originally Posted by *Wayfarer*
_average "market" return over last 50 years_

Then finally you say

"Now, I do claim that the Wilshire 5000 index is an analogue for "the market"." So which is it? And what 'market' are you referring to? This is the danger of discussing investments in public forums - which as a reminder, was *not* the question I started this thread with.

Since I actually manage money for a living (some may say better than others), I'll provide you with the correct data, as I'm compelled to at least set proper expectations. Unfortunately, after the 90's and more recently 2003, folks have come to 'expect' unrealistic returns from the stock market, resulting in a lot disappointment.

There are a few 'market proxies' that have 50+ years of data, but the 'best' is the S&P 500 which represents ~92% of the market capitalization in this country. Additionally, much as some may like to suggest that the returns on the Wilshire 5K or Russell 3000 - another 'broad market index' - are different, the difference in the annualized returns between the two over a 10, 20 and 30 year period are less than 0.50% per year - this is because indices are capitalization weighted, and thus what is 'missing' from the S&P 500 has a very small contribution to total return over time.

Since 1926, the start of the S&P 500, or any other market proxy (there are others as I've stated with that much data) the market has returned roughly 10% per year, which is slightly higher than the last decade which has yielded just north of 9% (S&P 500 9.08%, Russell 3000 9.2%, Wilshire 5K 9.16%).

In closing - never take investment advice, nor investment data from a website, especially one whose main focus is men's clothing.


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## arbitrage (Jan 13, 2006)

I save 25-30%. My mortgage is already paid off so I don't know if I am saving enough.


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## cfriedberg (Mar 31, 2006)

arbitrage said:


> I save 25-30%. My mortgage is already paid off so I don't know if I am saving enough.


Well first, having your mortgage paid off puts you in a unique group - congrats. Why do you wonder if you are saving enough?


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## arbitrage (Jan 13, 2006)

Well if my mortgage is paid off (and that is "supposed to be no more then" 35% of my income), and my utilities/monthly fixed costs account for only 15% of my income, then I technically should have 85% to spend/save. I am only saving about 1/3 of that. That is why I ask if I am saving too little.


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## Wayfarer (Mar 19, 2006)

*And to further show why not to take financial advice...*

I said I will not further belabour this but I will say cfried, you are correct, taking advice off the internet is usually a bad idea. I would submit it is also bad advice taking financial advice from a professional that speaks of "pre-tax gross disposable income" as there ain't no such beast and one that tries to calculate a total return without factoring in dividends, something the "Wizard of Wharton" says is the true key to investment success.

However, you have last word my friend.

Warmest regards


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## Srynerson (Aug 26, 2005)

In the last two years I have been saving about 50% of my after-tax income, but that's driven by my saving up for a downpayment on a house (which I will hopefully complete later this year). After making that purchase, I anticipate dropping my savings rate to something closer to 10 to 15% (the difference being my approximate mortgage payment/utilities/insurance/etc.).


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## cfriedberg (Mar 31, 2006)

Wayfarer said:


> I said I will not further belabour this but I will say cfried, you are correct, taking advice off the internet is usually a bad idea. I would submit it is also bad advice taking financial advice from a professional that speaks of "pre-tax gross disposable income" as there ain't no such beast and one that tries to calculate a total return without factoring in dividends, something the "Wizard of Wharton" says is the true key to investment success.
> 
> However, you have last word my friend.
> 
> Warmest regards


And I will take the last word - First, I erred in my typing, Second, my returns stated are total return, including dividends, why you would think I was quoting price returns is beyond me, third, I wasn't offering advice, i was merely correcting your inaccurate statements (especially since you have yet to disclose what 'market' over the past 50 years has delivered a 12% annualized rate of returns, with dividends whereas I have offered real data), and finally, since you choose to insult me and my financial expertise, I am pretty confident any financial advice I would offer would be leaps and bounds better than yours as given by your incorrect use of 'interest' when referring to the total return you quoted on an index, since the two are mechanically completely different (irrespective of the final result)- maybe you should have paid more attention in b-school.

You wouldn't have stirred up any 'ire' if you simply answered the question as was intended in a good hearted nature, which has been the manner in which all the other posters have done so (and clearly understanding my question if not forgiving my typing). Instead, you had to start off your responses to this thread by nitpicking, making wild statements about the 'simplicity' of becoming a millionaire, incorrectly stating how the savings rate is calculated (as you later corrected yourself, IRA, 401K and pension money IS part of the calcuation), and then suggesting that we are somehow arguing about the poor savings rate in this country - which never happened. Why is that people respond to threads just looking for a fight? If you don't like the thread, or the question(s) posed in it, just move on and don't respond.


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## 16128 (Feb 8, 2005)

Patrick06790 said:


> Zero. None. I spend what I earn in order to eat.
> 
> I now have enough clothes, fly rods, and other stuff, so I am going to experiment this summer with not buying anything and see if it is possible to save as a member of the "working poor," whatever that means.
> 
> I confidently expect to attain enlightenment. Levitation by Labor Day!


As a former journalist (official career field motto: "the full time job which requires another job just to make ends meet!") I know exactly what you mean.


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## ksinc (May 30, 2005)

One perpetual problem is many firms quote the 15-Year trailing return prior to the last correction. IE after a down, up cycle. Per 1936, 1963, and 1999 data this is in fact just over 12%. IE Since 2000 was a down year the 15 year average market return of 1999 is quoted.

Many people have 10-15 year horizons for calculations and of course, everyone plans to "cash out at the top!" LOL 

However, the 15-year trailing return has ranged between -2% and 13% since 1885. The historical real stock market return averaged 6.3%.

In fact, many people criticize CBO & OMB for being too "glass is half full" and using 7% in calculations.

Also this is a problem with many of the corporate pension plans that are bankrupt. Booking estimates at even 8% according to the AICPA reports I've seen. I'm not sure where this number comes from other than I know firm XXXXXX's policy is to use a flat 6% avg. return for all advisory calculations, but their advisors love to switch to 8% and get people all hyped up.

Our 401k planning tool even has a "Switch to 8%" button. Why? I have no idea.

Still, I think either option represented by the following data at 15-Years would put most Americans in a much a better position for retirement.

I	F A IFA
6%	23.276 $15,000 $349,140 
12%	37.280 $15,000 $559,200 

And sure, if you are in for 20 years it grows almost as much in the next 5 years as the first 15.

I	F A IFA
6%	36.786 $15,000 $551,790 
12%	72.052 $15,000 $1,080,780 

But, the real point is how many Americans are choosing any of these options? Or what is SS doing for us?

IF SS was merely a 50/50 split of employee/employer savings $7500/$7500 over 40 years at 6% in a private account every American would retire with at least 40 years in the plan. 

I	F A IFA 
6%	154.76 $15,000 $2,321,400 

Wouldn't that be something? Higher income people could even fund the $15k payments out of taxes. They would save far more on the backend in SS, Medicare, etc. 

Hey, maybe this should go in the 'Entitlement' thread? LOL


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## cfriedberg (Mar 31, 2006)

ksinc said:


> One perpetual problem is many firms quote the 15-Year trailing return prior to the last correction. IE after a down, up cycle. Per 1936, 1963, and 1999 data this is in fact just over 12%. IE Since 2000 was a down year the 15 year average market return of 1999 is quoted.
> 
> Many people have 10-15 year horizons for calculations and of course, everyone plans to "cash out at the top!" LOL
> 
> ...


Well put, and precisely my point to Way, my figures were nominal rates rather then real.


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## Mr. Knightly (Sep 1, 2005)

The "abysmal" savings rate has a lot to do with baby boomers retiring--which was actually the point of saving in the first place, so it's not as bad as it seems.

I've budgeted 19.5% of my after tax dollars to be saved next year--not bad for a teacher living in LA. That savings will be my 4k maximum Roth plus the maximum that my benefit package will match me for. It would be silly to not take advantage of both of those but beyond that would be pretty ambitious considering my situation.


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## cfriedberg (Mar 31, 2006)

Mr. Knightly said:


> The "abysmal" savings rate has a lot to do with baby boomers retiring--which was actually the point of saving in the first place, so it's not as bad as it seems.
> 
> I've budgeted 19.5% of my after tax dollars to be saved next year--not bad for a teacher living in LA. That savings will be my 4k maximum Roth plus the maximum that my benefit package will match me for. It would be silly to not take advantage of both of those but beyond that would be pretty ambitious considering my situation.


What do you teach? In downtown Chicago or the burbs?


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## Srynerson (Aug 26, 2005)

Mr. Knightly said:


> The "abysmal" savings rate has a lot to do with baby boomers retiring--which was actually the point of saving in the first place, so it's not as bad as it seems.


Except that the US has had a significantly lower savings rate than most other industrialized countries for several decades. The retirement of the Baby Boomers may be exacerbating the problem, but the problem predates that.


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## Acct2000 (Sep 24, 2005)

11% of my pretax dollars go to the 401K.

After Tax Dollars it's probably about 17%


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## Mr. Knightly (Sep 1, 2005)

cfriedberg said:


> What do you teach? In downtown Chicago or the burbs?


I'm graduating from grad school on June 9th and moving to Pasadena, CA to teach next year.


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## crazyquik (Jun 8, 2005)

Well lets see, about 40-45% of my money is spent before I get it (rent, bills, average food and fuel consumption). 

So I figure about 55-60% is discretionary. Some months I rarely go out to eat, don't rent any movies, don't drive as much, and don't buy any clothes. Those months I've managed to shovel away 50% into my investment accounts. Other months I'm less frugal and end up with a ~20% savings rate probably. For instance, this month I've been out to eat an above average amount of times, buying better gin, will be traveling to a wedding (which I'll have to buy gifts for), and of course I also had to buy a new necktie to wear to it...And when I was tie shopping I bought a new shirt too. So this month I'll be at the lower end of that range.


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