The Investing for Beginners Podcast - Your Path to Financial Freedom AAR32 - Listener Q&A: How to Calculate Your Real Savings Rate
Jan 13, 2026
This discussion dives into the complexities of 401(k) contributions, emphasizing they aren’t directly comparable to post-tax spending. Listeners learn a straightforward way to estimate the after-tax value of their retirement savings. The conversation shifts to emergency funds, detailing where to keep them and what expenses they should cover, like unexpected car repairs or home maintenance. Recommendations include aiming for six months of expenses and using high-yield savings accounts for better interest.
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Convert 401(k) To After-Tax Equivalent
- Convert pre-tax 401(k) contributions to an after-tax equivalent before adding them to your savings rate.
- Reduce the contribution by your effective tax rate so you can compare it apples-to-apples with other post-tax savings.
Three-Step Method To Estimate After-Tax Value
- Find your taxable income on your last federal return and estimate your effective tax rate.
- Multiply your 401(k) contribution by (1 - effective tax rate) to get the post-tax equivalent for budgeting.
Use Conversion Only For Comparison
- Do not decrease the actual 401(k) balance when tracking account balances; this conversion is only for comparison.
- Use the converted figure only when calculating and comparing your monthly savings rate.