Using Savings Rate (Sr) To Guide Conversations

Factors to Consider when Assessing Savings Rate

Understanding the correlation between these factors and your clients’ savings habits will help you determine if the given Savings Rate is appropriate or not.

Income: Higher income = Higher Savings Rate

Age: Higher age = Higher Savings Rate

Target Retirement: Sooner retirement date = higher savings rate

Upcoming Purchases: Upcoming purchases = Higher savings rate

Future Retirement Income: Higher future income = Lower savings rate

Questions to guide conversations

1 – What are their recurring contributions?

Keep in mind that Elements scores, and Savings Rate in particular, are reflections of a client’s behavior.  A one-time bonus is typically not a predictably recurring contribution (though certainly positively impactful to net worth and will show up in the form of increased net worth in Elements).  Focus on including and tracking consistently recurring savings contributions.

2 – Are they receiving employer contributions?

You should include all employer contributions in savings, but make sure to add the same amount back to current annual income. The income estimate your clients provide typically is not grossed up for employee savings contributions.  Adding these back to income in Elements ensures the client’s Savings Rate (Sr) will not be inappropriately inflated.

Example: A client has a 401(k) plan where they contribute 6% of their $100,000 annual salary ($6,000/yr). Their employer match formula is 100% of contributions up to 3% of salary (or $3,000/yr). You will enter $9,000 total contributions into the 401k for the year, and you will also enter the annual income as $103,000.

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