Percentage of Earnings to Invest
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when I was 12 years old and his recommendation in that book was 10% of earnings to the retirements account and then another 10% to a fun account that you can just blow on things like Porsches or boats. In fact, most of the recommendations that I can remember seeing are usually around that 10% mark.
Is 10% the right number? I think it depends completely on your own circumstances and your own retirement needs. 10% has been a pretty good “marketing” type number that banks and book sellers can easily sell to people - it is easy to understand and it is easy to implement. However, if your circumstances are funky - for example you will be getting a massive inheritance - then 10% may be too much. Or, if you are 45 years old and have not saved a penny for your retirement then 10% is probably going to be too low. It is important not to fall into the marketing trap and assume that you must do 10% or you are destined to live a desolate and boring retirement. Think of your own situation and determine what you will need to retire on, and plan from there.
What percentage of my earnings do I put towards savings? My situation is a bit different from the “average” person in that I receive a good amount of money from my employer for investing purposes. With my pension plan and savings plan contributions, and the corresponding matches provided by my company, my total investment contributions as a percentage of my earnings is around 16%. I am comfortable with this and think it fits in well with my plans.
8 Comments on this post
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Tim MMF said:
Once I’m graduated from college, I intend to save way more than 10%. But I think that’s probably a decent number for most people. I’ve heard that number thrown around too. Good post.
March 15th, 2006 at 12:48 am -
Investorial said:
I don’t remember you mentioning these… but I’ll comment that for most people, things will change when “kids” come into the picture.
Have you ever worked it backwards using some assumption for rates of return, how much you need to contribute to reach your $300K goal?
March 15th, 2006 at 12:58 am -
MrPaul said:
Interesting post. I completely agree with you. I am self-employed and save 30%. If I had an employer match or something like that I would save 10-15% less
March 15th, 2006 at 11:04 am -
GIV said:
Strangely enough, I don’t really earn very much at all (about 25K this year, but mostly will be tax free because of the 8K personal amount + stockpiled tuition credits + RRSP’s) but I live a pretty frugal existence. I don’t have a car, or student debts, or carry a big credit card balance, or have particularly expensive tastes.
I recall I started the year with about $2000 in cash savings, and after I get my tax refund and re-invest it next month, my investments will be worth a little over 12K.
By my calculations, that means I managed to save about 40% of my income this year. I’m sure I won’t be able to keep up that pace once mortgage, kids, etc. start piling up. But I’m going to try to keep that rate up as long as I can.
March 15th, 2006 at 3:14 pm -
Jose said:
I do more than 30% of my gross income.
March 22nd, 2006 at 9:18 pm -
Oilguy44 said:
My employer gives out 6% in a pension 2% in stocks and if I contribute 4% they will match that as well. So they give me 12% and I put in 4% for a total of 16%. I currently bump that number up each time I get a raise so now the total is 35%. 12% from the company and 23% from my contributions. I never miss the money and never touch it, it just keeps piling up! It does not matter how much you start with just as long as you start.
November 23rd, 2006 at 3:05 pm
[...] I read an interesting post on The Dividend Guy Blog that he invests about 16% of his earnings and I thought it would be fun to find out how much of their after-tax savings do people save. For example, Frugal Canadian saves an impressive 50% of her income. [...]
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