Pillar 2 and 3A in Savings Rate Calculation

Investing / Others
1

Hello folks,

I am wondering if I should include the Pillar 2 and Pillar 3a contributions (including the match from employer) in my savings rate calculation. These could be treated as Bonds component of the portfolio correct? In the US people typically consider 401k and IRA contributions also into their FIRE stash calculation based on what I have seen on various forums

So Savings Rate Could be = [Net Income (after taxes and social contribution) + Pillar 2a + Pillar 3a - Expenses] / [Net Income + Pillar 2a + Pillar 3a ]

Or it should be treated as [Net Income - Expenses] / Net Income

Would be interesting to understand which is better way to account for savings rate? The first method definitely boosts the Savings Rate.

2

2a yes.
3a depends what setup you have - if it’s VIAC stocks then correspondingly no :slight_smile:

I do include them in my net worth calculations, and you can decide for yourself whether your “savings rate” is defined starting from gross/taxed/net income.
I think “better” might mean what makes you feel better. :smiley:

I personally look at my savings vs. take-home pay to see what I “save”.
Since 3a does include paying into from that take-home amount, it is included there.
2a not, as I cannot affect it too much.

3

What is “better” ? Is it to win a “badass of the month” reward? You could “forget” your 2nd pillar in your calculation so that you have to save a bit more before FIREing, this way you have second cushion…

4

The higher savings rate definitely looks good on paper and makes me less nervous :smiley: But realistically I am looking at take-home vs savings for the Savings Rate.

5

Haha “better” is subjective, in my case including pillar 2 leads to around 8% increase to the savings rate which hovers around 33-40 % each month. I am definitely not trying to win an award for high savings rate :grinning:

6

I personally don’t take the contributions to the second pillar as part of my savings rate. It’s really too artificial.
As income, I only take what hits my bank account and then I take all the expenses I have, including state and county taxes! Many people compute their savings rate on their income after taxes. This is just a way to make it higher.

7

You could, however, if you were self-employed.

So one could make the argument to include it for the sake of consistency and comparability?!