Ratio of Retirement Savings to Non Retirement Savings?

Question

Is there a rule of thumb as to how much of your monthly savings should go to retirement vs non-retirement savings (emergency fund, kids college). Currently we are 32 years old and save 18% of our net income. Currently nearly all our savings goes to retirement savings, but it's tough to tell if that's excessive.

Answer 1

Hi,

  I don't think that there is a "rule of thumb" per se, but I do think that it is more important to save for your retirement than it is to save for the kids college.  After all, the child will be in college for four years and can work while you may be retired for over thirty years and can't ( or shouldn't have to) work.  I do think that there are some guidelines:

1 Emergency fund equal to 6-12 months of income in a liquid savings vehicle like a "no-risk" CD

2. Maximum contribution to a Roth IRA yearly

3. Maximum contribution to th employer sponsored retirement plan, if any (401(k), 403(b), etc.)

4 .Kids college funds

I do not think that 18% to retirement savings is excessive.  I would rather have the problem of too much money at retirement than  not enough.

Answer 2

How much you save is relative to your end goals, but here are some pointers.

1.  At least 3-6 months of monthly expense for the emergency funds, and yes this means ALL of your expenses down to gas and groceries.

2. 10-15% for retirement.

3. The rest can go to kids college (this depends on whether you have children already).