Determining your savings rate (and where to save)

Determining the proper savings rate is a personal decision, one that has to balanced against a myriad of factors in your life. One of the best, simple guides to establishing a sustainable savings rate is the 50/30/20 rule, popularized by Sen Elizabeth Warren prior to her political career. It states your income should be split into "50% needs, 30% wants, and 20% saving".  A 20% saving rate is a fine goal, and will put you well ahead of the average American whose personal savings rate over the last few decades has meandered between 5% and 10%. More info on personal savings rate here: https://fred.stlouisfed.org/series/PSAVERT    

Equally important as "how much" to save is "how" to save.  Listed below are three ways to invest long-term. These aren't the only three ways to save, but you need to understand each because they behave differently at the time of investment, at tax time, and at withdrawal time.

Thrift Savings Plan

The Thrift Savings Plan is the US Government savings plan for its employees.  Military members don't get matching funds, but you do get tax deferral and a tax-free withdrawal if you choose the Roth option.  TSP has five funds to choose from, plus some 'lifecycle funds' that combine the funds together.  The TSP funds have some of the lowest fees on the planet.

Individual Retirement Acct

IRAs have been available since 1974 and, like TSP, are a great way to shelter your investments from taxes.  The range of investments for the IRA is much wider than for TSP, but the amount you can contribute is less and, depending on the investment you choose, the fees are likely to be higher.

Taxable Accounts        

Taxable accounts are available to all income levels and have no cap on amount invested.  They lack the tax advantages of the TSP and IRA options, so they're a worse choice for long-term saving since taxes will eat into your earnings. However, you have access to your funds whenever you'd like, unlike TSP and IRA where you may have to pay a penalty to withdraw prior to your 59th birthday.