Beige Wildebeest Unless you’re going to be able just to brute force enough savings, savings rate isn’t going to provide the answer. Growth of investments is going to provide the answer. 

Habanero Salsa This is really missing the point of a savings rate.  It is a planning tool. You can calculate how early you can retire based on your current savings rate and projected withdrawal rate regardless of the balance of the account.  If you need further information on this, I recommend you look at FIRE (financial independence retire early) articles.

I agree with the original poster - this is sorely lacking in YNAB. It is totally misleading not to factor in savings as a portion of income / as a portion of total budget.

Maroon Trombone Like I said, unless you’re going to brute force it, savings rate isn’t really relevant. In fact, rate isn’t really relevant at all. 80% of an insufficient income will be insufficient. 5% of a big enough income will be enough. 
It’s about amounts and return, not rate of input. 
 

I don’t need more info on FIRE. I lived in a house, and was taught by, a man who retired at 44.

Habanero Salsa 

How long it takes to save enough to live on your investments is a function of your savings rate.  It's just that, as income goes down, it becomes harder and harder to have the higher savings rates to retire early and still have a reasonable lifestyle.

 https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

PhysicsGal said:
How long it takes to save enough to live on your investments is a function of your savings rate.  It's just that, as income goes down, it becomes harder and harder to have the higher savings rates to retire early and still have a reasonable lifestyle.

How long it takes to save depends now much you save, not on your savings rate. How much you need to save has nothing to do with your savings rate. Again, saving 100% of a too low income won’t work. Saving 5% of a sufficiently high income will. It’s not about rate, it’s about amount. 
 

You need $X to retire with a reasonable lifestyle. At a 0% real growth rate, you need to save $X/years to retire to get there. At whatever rate of return you plan to use, that amount can be discounted, but that’s the gist. Call it $Y per year for a given lifestyle. 
 

If you need $Y to be $25,000 and you make $50,000 you need a 50% savings rate. If you get a raise to $100,000 you need a 25% savings rate. If you get to $250,000 you need a 10% savings rate. The savings rate can be calculated, but it is not what drives the necessary amount. What drives the necessary amount is the raw number or dollars you need to save. 

Habanero Salsa You're making different assumptions from those used to find the graph on that page.  In the calculation on that page the assumption is, if you can live in x% of your income, and thus save (100-x)% of your income, then you can retire as soon as you can generate x% of your income from your investments after you retire.  I like this method because you know already that you can live on that income, since you already do, but that doesn't mean it's the only way to think about it.

Personally, I think the graph and it's assumptions make more sense to me because you're already practicing living on that lifestyle while you are saving to retire, whereas, if you live on $75k and save $25k of your $100k income and then suddenly retire and have to live on  $25k, that's 1/3 of what you were living on before and is going to be a rough change for most people.

Habanero Salsa 

Habanero Salsa said:
Again, saving 100% of a too low income won’t work

 Actually, if you're able to save 100% of your income in an ongoing manner while you're working, you can retire, regardless of what that income is. If you make $15k per year scrubbing toilets at McDonalds, and you would be able to not spend that $15k per year because your needs are met in other ways, you could retire. That is the whole point of calculating savings rate. You're right in that you need a certain return to provide a certain level of income to meet your spending needs, but again, the ability to save 100% of your income means you could retire from working right now.

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Think of your example calculations another way. Instead of saying you need $Y to be $25,000, and you make $50k, what if you make $50k and you decide that you want your savings rate to be 75%, and somehow you find a way to save $37,500, then your COL is now $12,500, so you need less to live off of, so that money you just saved is now 3 years of living expenses ($37,500 / 3 = $12,500), instead of the 1.5 years of living expenses ($37,500 / 1.5 = $12,500) it would have been if you were making $50k and saving 50%.

Orchid Leopard If you can do that, it isn’t “too low” an income.  My point has nothing to do with the “ability to save” but the sufficiency of the savings. 
 

If you need to be able to save $15K a year to be able to retire under some set of desired circumstances but you only make $12K, even saving 100% won’t suffice. If you make $1,500,000 then 1% will suffice. Again, it isn’t about the savings rate. It just isn’t. 

Habanero Salsa said:
to be able to retire under some set of desired circumstances

This statement is the crux of the disagreement.  I think you are just making different assumptions.  The assumption in the calculation is that lifestyle after retirement will be the same as before, so you only need to cover the part of your income that you were spending before retiring with your investments.  You seem to be assuming a change in lifestyle after retirement, which would indeed change the calculation.  The OP seems to want to keep the lifestyle the same to allow early retirement if savings rates are high enough for long enough.  If you want to buy a yacht and sail around the world in retirement, even living on beans and rice your entire life while working a low wage job,  it's still going to be darn near impossible to save enough to make that dream retirement happen.  The "desired set of circumstances" assumed in the calculation on MMM blog is that you spend the same amount of money before retirement as after retirement.

PhysicsGal If I am aggressively saving in order to retire early, making sacrifices and cuts to allow that, I do NOT to want to continue that through all my retirement years as well.

The general approach makes more sense to me, rather than one that can handle only the specific case of an unchanging lifestyle.

PhysicsGal Still has nothing to do with rate. It has to do with raw dollars. If one wants to convert the raw dollars into a rate, have at it, but that’s a derived answer, not the fundamental answer. 

The FIRE community calculations are based on savings rates. Nobody here is going to convince them otherwise. And yes, MMM's teachings are making the assumption that you'll live the same lifestyle in retirement that you live now.

dakinemaui That's fine, everyone is different, it's all about priorities, so don't use that graph if that's not your goal.  Personally, I'm not really a FIRE person in any sort of hard core way, I'm just trying to stash as much as possible and only splurge on high priority things for now, so that maybe I will have the option someday to retire early. 

It really all depends on your priorities, like everything with personal finance.  I just want to have my time to do what I want with it, I don't need a lot of money for that goal, most of the hobbies I want to devote my time too won't be costly.  I want to make more progress on my reading list (my list of books I want to read before I die would probably take my whole life even if I was just reading and nothing else, but I guess I'm crazy that way), devote more time to developing myself as a writer, get better at piano, and maybe even learn violin, do more yoga, and spend more time relaxing on my porch.  I'd be happy to live on what I'm living on now but with my time devoted to my priorities.

I actually really like my job, so it's not even like I don't want to do job anymore, I just want more time for other things also.  Maybe once I have enough saved up, I can go part time, then I won't have to worry about covering my health insurance and will still have some money coming in?  It's something to consider.  It would probably also help to have at least some external structure.

Superbone I think it's just a matter of different priorities.  You do you, if the assumptions behind that calculation aren't accurate to your desired retirement, then you really shouldn't use that graph.

PhysicsGal oh, totally. Just throwing out an opinion. Cheers!

PhysicsGal That was my point. I was talking about the FIRE community perspective. Not mine.

dakinemaui In our most recent discussion with a finance professional, he asked how much we were saving each month.  This was difficult to answer, even though he said he was familiar with YNAB.  My favorite part was when he asked how much uncategorized money we had each month. I asked which categories he considered uncategorized... And he actually answered. With a straight face.

Beige Wildebeest In that case, the retirement savings rate is dependent upon what you budget to the retirement category (ies) plus any pre-tax things that are not typically in YNAB (e.g., 401k). That's pretty straightforward, though.

Move Light Sound Life What did he say?  How do you even answer that?

Beige Wildebeest I just calculate my savings rate myself, on a monthly basis, when I also track my net worth.  I just do it in a google spreadsheet, using my paystub and adding whatever I contributed to my Roth IRA that month.  I only include retirement savings in that though, not savings for my Emergency fund, or other shorter than retirement timeframe goals.

PhysicsGal He said that his "uncategorized" categories included things like insurance premiums, emergency fund, retirement contributions, gifts, etc. Essentially, any True Expense. 

However, in conversation, it seemed that the reason he wanted this number was to calculate how much we could "roll" from our debt paydown into savings. 

So, those two concepts don't really work together, of course.

I just wish I could teach him YNAB. But, I can feel comfortable knowing we've got the budget down, and he'll help us with the rest. It helps that he speaks my husband's math language. You know, the kind without labels, where numbers pop up from different perspectives, and conversions happen invisibly. I can't follow it at all and I hate feeling dumb.  I'm not bad at math. 

I'm smiling at my husband lovingly as I read this aloud. He's a great guy. 

Move Light Sound Life I find it amazing when people say two things in the same sentence that contradict one another without even noticing. 

Beige Wildebeest if it's budgeted in Dec's area, it seems reasonable to attribute it to Dec.

Beige Wildebeest the budget is the report. If you have more than one retirement category, either combine them or group them.

Additionally, though, if you transfer that money out of the budget (which is typical), it shows up in the expense report at that point.

Beige Wildebeest I was thinking more of the Income v Expense report. Income - Expenses being your savings and then savings / income being your savings rate. The problem with that though is it includes your shorter term Rule 2 fund savings as well. Of course, this is all budgeted savings. If you're like me, the majority of your savings is done pre-tax by your employer and taken out of your check before you even see it.

dakinemaui 

dakinemaui said:
Beige Wildebeest the budget is the report. If you have more than one retirement category, either combine them or group them.

 This is what I do to track my Savings.  Then I only need to look at the Master Category Account 'Budgeted' number in any month to know my savings total which I can track against the Funds for "Month" to get my savings rate.

Annieland Do you create a new category every month to represent the holding funds?

@annieland Yeah i got your point. For this I need to buffer up atleast 1-2 months ahead, hopefully will get at it, with time.

nolesrule It’s even worse than that. If you save $1000 into a total market index fund and the value declines to $800, how much did you save?

Habanero Salsa Agree, although in the long term the assumption is it will have growth. Thus one would only calculate on contributions and not on growth/losses. And then technically unearned income, which contributes to AGI is generally growth. Like tax inefficient bank interest.

But yeah, it's confusing.

nolesrule But you can't retire early on assumptions. I agree that people should determine how much to put aside. If you meet those targets, your savings goals are on track, but that doesn't mean your early retirement is, and that is the objective underlying the OP's questions.

In order to assess whether early retirement is on track, you have to evaluate performance, not just savings rate. So, savings rate is complicated to determine and isn't sufficient, and maybe not even necessary, to answer OP's question.

(And, according to my "financial advisor," the denominator is total realized income from all sources, including: gross income, employer match on retirement accounts, bank interest.)

Habanero Salsa I like how something is both growth and savable income. Way to fudge the numbers.

Most people can't retire early on savings alone and need to invest in order to reach a safe number. Therefore one must make a reasonable projection on growth from investments, knowing that the growth is not a constant. Therefore you need to run monte carlo simulations or repeat of past historical period's performances to get you a probability of whether or not the plan will work. See cfiresim or firecalc.

Even after retirement, the number you have still relies on probabilities to project success.

nolesrule Right. Which was my answer above. Unless OP can brute force retirement savings with cash, the answer lies in investment returns, not savings rate.

I don't know that it is "fudging" numbers, which has a negative connotation. It's creating a larger denominator so that hitting a higher savings rate requires more effort.

Believe me, I got way more information on savings rates, Monte Carlo simulations, firecalc, sustainable withdrawal rates, and the rest than your average teenager.

Beige Wildebeest Seems to assume income doesn't decrease. That is an unwarranted assumption. And it's also why raw numbers work better than percentages.

Also, are you tax-adjusting based on the type of account the savings goes into? Makes a pretty big difference.

The real problem with trying to simplify these things is that they can't be simplified. Too many variables that don't get accounted for that can have a major impact.

And finally, since your savings needs to be a multiple of expenses, not income, you should be comparing the amount you save to your annual expenses, not to income. Income is meaningless because at best it's very loosely tied to expenses.

Beige Wildebeest But anyway, good luck.

Beige Wildebeest I wouldn’t conflate current expenses with expected expenses in retirement, though. For example, someone might buy a pricy house which increases current expenses but could still be mortgage-free in retirement. 
 

Current expenses probably make a good starting point, though. Even then, projected expenses are kind of a moving target... maybe travel expenses go way up at first but drop as you get older. And so on.

The good thing is, a lot of the math has already been done. Fairly conservative starting points are shooting for 25x expenses as a starting retirement pool and/or about a 4% inflation-adjusted draw down rate. Then you “just” have to figure out how to accumulate 25 times of some amount of annual expenses. 
 

More on the original topic, though, I’d do the math in Excel and set up the goals in YNAB. If you’re meeting the goals, you know you’re on track.

Wow. That networtify calculator sucks. It makes a lot of dumb assumptions, like Income - savings = Expenses, and that what counts expenses will be constant between now and retirement and into retirement. Pretty sure I won't be paying FICA taxes, for a start. Income taxes will probably drop too. Which means I won't need to save nearly as much.

Edit... O h it makes some assumptions, so then you have to crunch numbers to adjust the numbers you put into the calculator to come up with after-tax income. But comparing a mix of pre-tax, tax-free and taxable savings to after-tax income can come up with some bad end-results. Garbage in garbage out.

Beige Wildebeest How can you expect YNAB to do any of this?  It's for budgeting for groceries, saving up for a vacation, and building or maintaining emergency funds.

Do the FIRE people (bonkers, imho) use and recommend YNAB to actively plan for dropping out of the workforce?  My personal policy when I purchase something, virtual or tangible, is for it to do one thing and do it well.  I use Banktivity for Mac to track all my personal finances, and it actually calculates a 1 yr and 30 day savings rate right on the home screen, which can be customized.  I look at it, but I don't "use" it because it has no bearing on my day-to-day decision making.

But on a side note, you could check out https://maxifiplanner.com/.  I subscribed for a year, but didn't renew.  It just required way too much data for me to keep on top of, but I haven't seen anything else approaching financial advisor software online for the consumer market.

Oh, and one more thing.  This is more about spending and not budgeting, but the Toolkit reports has that funky Income Breakdown.  If you have a net gain you can hover over it and see the percentage you're ahead for that time period.

Annieland My dad was a “bonkers” FIRE person. He recommended YNAB, taught me how to use it, and wouldn’t use anything else for budgeting. He used Excel for the planning and YNAB for the implementation. That’s what I’m doing, too. 

Habanero Salsa I'd love to teach my kids YNAB as your dad did for you.  That was quite a gift you received from him.  I think I inherited my financial acumen from my dad too.  I recently found his financial spreadsheets printed out from the early 90's and they look stunningly similar to mine, even though it was ALL IN CAPS and he barely knew how to use any other software.  His whole goal was to retire at the exact age his pension would kick in, and I think that was 59 1/2.  Unfortunately he passed away suddenly at 55.  So I do get it.  I'm just snarky, and I want my husband to work forever because I want mo' money, mo' money, mo' money!! 🤑🤑🤑

Beige Wildebeest I really don't see why a historic tally is important. All that really matters is where you are today and where you want to be... later. The fact you might have saved $10k (or even x%) last year doesn't mean anything.

dakinemaui 

Historical data can be a helpful planning tool! It's just like with spending reports. Can I change the past? No, but the past can be a good predictor of the future. If I only saved $10k last year, I shouldn't expect to dramatically improve on that without making major lifestyle changes.

Additionally, historical data can be a nice motivator. When I do make improvements, it's nice to see that reflected in charts (and motivates me to keep it up!)

Beige Wildebeest I hear you, I like the reporting as well.  We solved by having a master category of "Savings & Investments", for long-term savings.  The sub-categories are Roth IRA, Solo 401k, 529s, & Emergency Fund.  We have an on-budget checking account & on-budget savings account - these are for our monthly expenses, and true expenses/sinking funds.  When we transfer the money from the on-budget checking or HYS account to an investment fund, like a contribution to a backdoor Roth IRA, then that shows as spending in our reporting.  We can get reporting on our overall "Savings & Investments" contributions, by particular investment account (bcs each is a separate category).  For a savings rate, we compare the "spend" to those investment accounts against total income.  If I want to see actual expenses (not "savings" expenses), I simply deselect the savings master category from the report.  It works really well for us, seems like it would for what you're trying to do.

HappyDance Heh that's funny.  40% was my hypothetical pie-in-the-sky savings amount in my earlier post.  And I went on to pretty much insinuate I would starve to death saving that much.  And here you are doing it!  That's awesome, girl. Way to go :)

Annieland 

About a quarter of that 40% is true expenses.  I tend to view those expenses as ones I could remove from my life with enough runway time, like not needing to renew car insurance if I sold my car.

So, in all honesty, my actual "savings" rate if you're calculating funds I can set aside and not spend within the same calendar year is closer to 30.

Superbone hmmm, based on this, my savings rate is 54%. Well probably slightly lower because I still have some spending to do this year, but I can't see it knocking it too far down. . .

jenmas Meh. My savings rate is 100% because there is always at least some amount of time that elapses between when money is deposited in my account and I spend it. 🤣

Beige Wildebeest
I think he was just pulling numbers out of a hat to use as an example, and there's nothing wrong with doing that. Where the number came from is not really important as part of his point and you've focused on the wrong aspect of it.

Make sure you stick with me through  the last paragraph, because it will illustrate a really important point..

The rule of thumb for retirement savings for a normal retirement so that you do not run out of money is 25X expenses. So you estimate your expenses. Subtract out future known income streams (pension, Social Security). Multiply by 25. If you want to keep it simple and not account for growth, divide that number by the number of years till you plan to start retirement.

There's your raw number. That's what you need to save per year in order to hit your number with the assumption of no growth. The calculation becomes more complicated if you assume growth.

The raw number is your target, regardless of how much money you make, so as Habanero Salsa correctly points out, the rate itself is not really relevant, because it's a function of the raw number and the amount of money you make. The Savings rate is derivative from the actual important numbers.

I couldn't tell you what my savings rate is. What I do know is that if I keep saving my target amount of money year over year we'll hit our target number at age 62 with just 2% growth.

But.... I got hit with a 10% pay cut this month and my wife got hit with 2 weeks of unpaid time off unexpectedly. If we were to use savings rate as our benchmark for the year, then we'd end up short of our target for the year because now our salary is lower. With the paycuts, our income is down, so the amount saved to our 401ks will be down. But our savings rate would actually go UP, not down.

Let's say for example that we make $100k and our target for saving is $25k. That would be a 25% savings rate. Let's also say that 15% is contributed to the 401k so that means $15k of that $25k is from the 401k contributions. Now, let's say you get a 10% paycut half way through the year. Your final income for the year will be $95k. Your 401k contributions will be $14,250. That puts your total amount saved for the year at $24,250. That ends up being a 25.5% savings rate. But the reality is you saved $750 LESS than your target.

Beige Wildebeest Time to retirement is a function of how much you save not your savings percentage. Savings percentage is a derivative formula that really doesn't make for a good benchmark. The best benchmark is raw dollars, which don't even require a calculation.

If income goes up, your savings rate would go down to meet your target number at the same point in time, or if you kept it the same you'd retire early. if your income goes down, you'd have to increase your savings rate to meet the target time, or you retire later. Because it's the raw dollars that matter.

Beige Wildebeest said:
One of the tenants of the FIRE community is that we SHOULD try to decrease our expenses so that we need less money for retirement.

No disagreement there. I will only point out that tenant deals with expenses as dollars, not as a percentage of income.

Beige Wildebeest said:
This is in contrast to a lot of traditional personal finance advice which assumes expenses are fixed and god given and must be planned around.

You'll also have to understand that YNAB users are very much not "traditional". They quickly realize that to improve their situation, either expenses must be lowered or income increased. Reducing expenses is one of the first things that happens.

(FWIW, contributions toward retirement are viewed as just another expense, the priority of which must be weighed against all the other demands on your money. An "expense" is simply defined as money leaving the budget.)

Reducing expenses is one of the first things that happens.

A refinement of that statement: LOW priority expenses are reduced, allowing more important expenses to be funded at a higher level. If retirement is one of those higher priorities, it gets more funding and accelerates the timeline for a given level of retirement expenses.

In YNAB, the relative priority of where your money goes is a pivotal concept.

Beige Wildebeest said:
One of the tenants of the FIRE community is that we SHOULD try to decrease our expenses so that we need less money for retirement.

 That decrease in needs is going to be offset by an increase in wants. That extra 25% of the week you used to spend working has to be filled doing something. For some people that will be free, for others it'll cost money.

I use YNAB as a way of decreasing my needs. That allows me to increase my wants and savings so I can be comfortable and more secure at the same time.

Beige Wildebeest The problem here with using it as a metric are two-fold.

The first is that a rate contains two numbers A change in X divided by a change in Y. The problem is that most people focus on the change in X, and tend to understand the various levers they can pull to manipulate X. But in my experience, people don't truly understand how to interpret the effects of a change in denominator, but rather tend to assume a static denominator.

Remember how many classmates had trouble with reciprocals and inversions in math class?

There are lots of levers that can be pulled (or are pulled for you) that change the number, so unless you understand the math behind the number, the number doesn't have any value because you can interpret it incorrectly.

And that was my point with the demonstration of the drop in income from earlier today. I pulled a lever that most people consider to be static, and it resulted in what the calculation would suggest to be an improvement, but in reality it was not.

The second  is the concept of anchoring. It's human nature to focus on an easy to see, seemingly simple number, and lose site into the details that are more helpful in decision making. It's worse when you anchor on a number that doesn't mean what you think it means because you don't really understand all the pieces that go into the number.