This seems like a really simple and obvious question, but I can't find any previous questions on this site that directly address it. Perhaps it's so simple that people find it trivial.
Almost all basic retirement advice eventually discusses using your retirement savings percentage as a way of determining if you are more or less on track for retirement. Conceptually, this is really easy - amount saved divided by amount earned. However, when you are saving money in both pre-tax accounts [IRA, 401(k), 457(b)] and after-tax accounts [Roth IRA, Roth 401(k), Roth 457(b)], directly comparing the amount saved in each account is misleading.
So, what is the best way to calculate a combined savings percentage when using pre- and after-tax accounts? Or is a combined savings percentage meaningless in these cases?
Consider the following example:
Category Percentage Amount Gross Yearly Pre-tax Income $50,000 Voluntary Pre-tax 457(b) Cont. 8% $4,000 Mandatory Pre-tax Pension Cont. 7% $3,500 Gross Yearly Taxable Income $42,500 Combined State and Fed. Taxes 21% $8,925 Net Yearly Take-home Income $33,575 Voluntary After-tax Roth IRA Cont. $6,000
I have been accounting for the after-tax Roth contribution by converting it to an equivalent amount of pre-tax money by dividing by (1 - tax rate). So for the example above (I apologize, I completely failed at formatting this as a pretty equation):
Combined Equivalent Pre-Tax Savings = 4000 + 6000/(1 - 0.21) = $11,595
I would then calculate my savings percentage based on my gross yearly pre-tax income, as follows:
Savings Percentage = 100 * 11595/50000 = 23.2%
(Note that I am not counting my pension contribution in any way because even if I ever do get any money from it, it won't be proportional to what I put in.)
Is this correct/does this make sense? Is there a better way to calculate this percentage? Or is any combined pre-tax and after-tax savings percentage always going to be misleading?