What Should I Count Towards My 25% Investing Rate?

Frank’s question: It says my company gives a 6% profit share plus a dollar-for-dollar 4% match, so it’s at 10% total. I make 200k PL plus a 20% bonus floor. So what should I count towards the 25% savings rate? Sounds like this guy has some really good complexity going on. So how would you counsel him? Well, let’s start at the beginning, right? A dollar-for-dollar match on the first 4% is awesome, right? Like, that’s amazing. It’s why it’s step two, Brian. You have a thing you can hold up. It’s why it’s step two of the financial order of operations: free employer money. You have to go out there and get that. So, it’s awesome that you have an employer that gives you a dollar-for-dollar match. Well, in addition to that, it sounds like your employer also does what’s called a discretionary profit-sharing contribution where they’re going to put in 6% of your salary on top of what you’re doing. So, like you said, you have 10% going in. So Frank has already told us, Brian, that he makes $200,000 plus a $20,000 baseline, $220,000, and he’s trying to figure out, well, if my employer already does 10% for me, if I do 4% and then they do 10%, that’s 14%. How far off am I? Do I get to count it? Or does something with my income cause that to not be the case?

First of all, this is, I always say, “hug your employer” day. But it maybe it’s, um, high-five your employer because I’ve been told that we don’t hug our employers anymore. And truthfully, I wouldn’t want a bunch of people hugging on me either. But it’s, um, but it is one of those things. Your employer setting you up for 10%? That’s incredible. And within the financial order of operations, you’ve got to maximize. Sounds like 6% is going to happen no matter what you do. The 4%? Get in there. Take advantage of that. That’s awesome. Your question, though, and this is a good thing, you make good money, and good money is a blessing. “Curse” is not the right word, but it does create additional responsibilities. The fact that when you have a good income, that there’s, you’re further from the public safety net, meaning that yes, you might get Social Security, but it’s going to be a much smaller portion of probably what your outgoing expenses are than somebody who makes $40 or $50,000. Um, so we want to build that into our plan, because if you are spending because your employer is so generous, you’ve let lifestyle creep expand your lifestyle to where when you do get to retirement, you need an income that can replace 100% of what you are earning because you need your assets to be able to produce that or other income sources because you’ve got very accustomed to spending that. And that could be a problem. So that’s why we have built rules into people who have higher income. So if you, you, at $200,000, I would challenge you to, yes, your employer is very generous, but I’d still like you to get to 20 to 25% of your gross income without the employer just because your income is so high that I want to make sure that this is not catching you on the other side. Because if you expand your lifestyle due to lifestyle creep just because you have a generous employer, you’re not helping yourself. You’re actually working against yourself in the long term because you’re going to need that money to cover your lifestyle. And it’s just not going to be the retirement that I think you had planned for or hoped for.

And what’s the worst-case scenario? You save your 25%, and then your employer also puts in 10%, so you’re at 35% of your total wages going in. You might have options earlier in life than you would have otherwise. You might be able to take your foot off the pedal as you do get into your 40s or 50s, or maybe early retirement is something that is realistically on your horizon, but I think that’s something that can be a welcome surprise when you get there, not something that you plan for on the very front end. Yeah, I mean, when you own your time sooner, that’s a win because then you work because you want to work and you do what you want to because you want to, not because you have to. And I think that’s a big. So where’s the downside for being a disciplined person that saves 20 and invests 20 to 25%? I just don’t see it because I think when you can own your time sooner and have even more flexibility and margin, it really opens up some doors that, um, versus the other side is just build your lifestyle, consume more, and then be unpleasantly surprised when you realize, “Holy cow, maybe maybe I should have been saving more money because I’m I was successful, and I was acting rich versus building wealth.”