The White Coat Investor and most other reasonable personal finance blogs for physicians recommend saving 20% of gross income for retirement. (People who aren’t physicians usually do fine with saving 15% because they start the process earlier and benefit from more years of compounding.) If you are aiming to retire early, you need to increase that percentage.
With my current job, I am technically employed by two different organizations, the result being I get two salaries and can contribute to both a 403(b) and a 457(b). But wait, there’s more! One organization provides a 501(c) with a mandatory 5.5% employee contribution and 8% employer contribution, and the other organization contributes an extra 9% of my salary to a different account (I have no idea what numbers go along with that one).
All together, if I max out my 403(b) and 457(b), and all personal finance sites recommend maxing out tax-advantaged space, taking into account the forced 501(c) contribution and employer contributions, I’m saving 25% of my gross income. And we haven’t even considered the backdoor Roth IRA! We could save another $15,000!
This begs the question, do we want to do this? Would I ever consider saving less?
What if, instead of going for a 25% percent retirement savings rate, I went for 20%? This would involve me not maxing out one of my retirement funds, which would feel weird after reading so much about the importance of doing so. It seems like everyone is doing it. (This is probably not true.) Does that mean I’d fall behind? Would I be missing out?
What would we do with an extra 5%? Would we save it up for something big, like a bathroom renovation, a new business venture, adopting a child? Would we just inflate our lifestyle by eating out more, going on more trips (my husband would hate that) and upgrading our stuff? Would we give it away, as gifts, family assistance or support to organizations we believe are making difference?
I have, of course, a few thoughts. The first is that, the extra 9% from one of my employers comes with golden handcuffs, meaning if I leave my job before I’ve worked there for three years, I forfeit the money. I don’t plan on leaving my job, but life does weird things sometimes, so in the spirit of not-counting-my-chickens-before-they-hatch I’m not going to include the extra 9% in my savings calculations until I’m past the three year mark. Taking everything else together, and including a little extra that goes into a taxable account, we’re saving right at 20%. Meaning, we can kick this decision down the road for another two years.
The second thought is that there are a lot of warnings in the Bible about putting too much faith in money. A wise man in Proverbs asks God to avoid giving him too much wealth, lest he put his faith in his riches and not in God. The rich man in Jesus’ parable is foolish for building up his possessions and not putting any thought to the fact he could die any moment and that he has an eternal future on the other side of death. Jesus teaches that our hearts follow our treasure. James castigates rich people for mouthing platitudes while ignoring the poverty of their brothers and sisters. The Bible also teaches that wealth is not a bad thing, but the implication is that it comes with the responsibility to use it wisely.
I know that I am tempted to derive security from the money I’ve saved up – that’s just I am. Because of that propensity, I believe it will be wise to avoid going beyond 20% retirement savings in the future. Instead of hedging my bets by stashing away another five percent or more, I can ask God to use what we save to provide for our needs. My husband and I will need to have more discussions about it, but I’d prefer to use the money we’d otherwise be saving for the benefit of others. One can make the argument that by saving more now, there will be more to give in the future… but the future is uncertain. I don’t want to wait for a mythical tomorrow that isn’t guaranteed.
SDG