The Average Saving Rate By Income (Wealth Class)

The average saving rate by income increases the more you make. That's logical since living expenses like housing and food tend to more relatively more fixed.

However, the average saving rate doesn't always increase with more income due to a lack of discipline. We all know people who spend way too much and live paycheck-to-paycheck despite huge salaries.

Before the global pandemic began, Americans as a whole didn't save a lot of money. Up until May 2020, the average saving rate was only around 7%. At least 7% was better than the average saving rate of only 2.4% in 2006.

In other words, it takes the average American 13 – 45 years to save just one year's worth of living expenses. That is a disaster if you want to achieve financial independence sooner, rather than later.

When you're 60-something years old and only have several years worth of living expenses to buttress your declining Social Security checks, life isn't going to be very leisurely. You'll probably be mad at the government for lying to you and mad at yourself for not saving more when you still had a chance.

Americans Are Saving More Today

Thankfully, in 2022, Americans have learned their lesson. The average saving rate shot up to 33% in April 2020, but has fallen back down to below 8% in 2022 as the economy gradually strengthens and reopens.

We know that the average saving rate will go back down to about the 6% – 7% range again once everything gets back to normal. The good thing about the huge ramp in the average saving rate in April 2020 is that Americans can save if we want to!

Personal Saving Rate in America 2022

The problem with averages is that averages distort reality. For example, the average household has a net worth of approximately $710,000. You and I know that this is impossible based on common sense. But simple math doesn't lie.

Take the total household wealth in the US of $81.8 trillion (according to the Fed) and divide by 115,226,802 US households (according to the Census Bureau) and you get $710,000.

Related: How Much Should My Net Worth Be By Income?

I'm absolutely positive more than 90% of Financial Samurai readers save more than 7% – 8%. We are personal finance enthusiasts after all. Therefore, what's the reality behind this ~4% national savings figure? The truth is that savings rates vary by income.

Average Saving Rate By Wealth Class

Take a look at this fantastic chart by economists Emmanuel Saez from my alma mater, UC Berkeley, and Gabriel Zucman from the London School of Economics. It shows the average saving rate by income, or wealth class as they call it.

Average Saving Rates By Income (Wealth Class)

The dotted line shows the often quoted 4% figure, which is made up of the bottom 90% of income earners. The top 10% to top 1% of income earners save roughly 12%, which I find surprisingly low. It's only the top 1% who saves an impressive figure at roughly 38%.

Related: Who Are The Top 1% Income Earners?

Average Saving Rate For The Top 1%

The average saving rate for the top 1% is 38%. This average saving rate of 38% is key for EVERYONE to try and shoot for.

The top 1% of income earners can clearly save more of their income because less of their income is being taken up by necessities such as housing, transportation, food, and education.

The 38% savings figure also blows away the feel-good myth by the middle class that rich people tend to blow their money and end up broke in the end like the rest of us. The rich are rich for a reason. And one of the reasons is an impressive savings rate.

Related: How Much Do The Top 1% Make?

The Average Saving Rate By Income Needs To Increase

I strongly believe everyone should start with a minimum 10% savings rate, and gradually increase their savings rate by 1% a month until it hurts.

After staying with the painful savings rate figure for several months, the pain starts to go away. We humans are adaptable and will naturally change our spending habits to adjust to our incomes. I

If your savings rate doesn't hurt, you are not saving enough. The average saving rate by income needs to drastically increase. It needs to stay elevated for decades to help people achieve financial independence.

The ultimate goal is to shoot for at least a 20% steady state savings rate so that every five years of work equates to one year's worth of savings. By the time you work for 40 years, you'll have therefore accumulated at least 8 years of savings. Thanks to compounding, you will likely have even more.

If you don't want to kill yourself at work for 40 years like the typical person, then you must figure out a way to save more. Once you regularly save 50% of your income, then there's no doubt you'll achieve financial independence within 20 years.

No Excuses To Not Saving More

Making at least $30,000 per person should enable you to save at least 10% of your gross income. To save more, find a roommate, live at home, cook your meals, abolish alcohol, skip out on the latest Justin Bieber concert if you have to. Make savings a priority if you want to be free.

If you are making less than $30,000 a year supporting only yourself, then consider: 1) finding a more lucrative job, 2) building multiple income streams, 3) developing more financial buffers and expanding your knowledge and skills. Of course everything is easier said than done. But that's what this site and many other personal finance sites are here for.

The Average Saving Rate Poll

Come take my savings poll to see what the average personal finance enthusiast saves a year. To clarify “savings rate,” a 20% gross income savings rate on $100,000 = $20,000 in the bank for simplicity's sake.

The reality is that you are saving more than 20% if you calculate your after tax income since $100,000 gross is really only around $80,000 net of taxes. Hence, a 20% gross savings rate is equivalent to a ~25% after-tax savings rate ($20,000/$80,000). I've added an after-tax savings poll to be thorough.

How much of your total gross income do you save a year on average?

View Results

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How much of your total AFTER-TAX income do you save a year on average?

View Results

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Build More Wealth Through Real Estate

A high saving rate is fundamental for achieving financial freedom. However, your savings must be invested to beat inflation and produce passive income. Inflation is high now, which means we need to invest in real estate, which benefits tremendously from inflation.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.

Take a look at my two favorite real estate crowdfunding platforms.

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and manages over $3.5 billion for over 500,000 investors. For most people, investing in a diversified eREIT is the easiest way to gain real estate exposure. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio. 

Both platforms are long-time sponsors of Financial Samurai and Financial Samurai is an investor in the Fundrise Flagship Fund.

The Average Saving Rate by Income And Wealth Class is a Financial Samurai original post. I've been helping people save and invest more since 2009. Come along for the ride!

129 thoughts on “The Average Saving Rate By Income (Wealth Class)”

  1. How do you categorize income after tax that is reinvested into downpayments for rental properties and investments into stocks? Are those savings?

    My paycheck: Taxes – 21%, Health ins – 5%, retirement (401K, etc) – 16%, mortgages for primary and rentals and prop taxes – 27%, reinvest into downpayments – 21%, spendings (food, car, etc) – 10%.

  2. James Cortez

    I am 58 years old and would like to know where I stand. I have been out of work for 3 years and my total net worth is $1.9 millions. I have no house and my yearly net income is about $60,000 out of which I have been able to save $28,000 to $30,000 annually. Will I be in financial trouble in the future relying on this income? Your comments / reply / feedback are appreciated

    1. If I’m hearing you right, then I’ve got good news! You’re not “out of work”, you’re retired! If you’re managing to save $28-30K from your net income of $60K, then your annual expense must be hovering around $30-32K? Even with a very conservative annual withdrawal rate from your nest egg, you should be able to pay your bills for the next 100 years!

      But don’t take my word for it. Here’s where I get my info:

      Cheers to you!

  3. I just did our savings rate (gross) and it’s about 68%. I don’t know the net rate yet (which I feel like matters more) but I think anything hovering around 50% is healthy and doable for 6 figure income households in an average cost US city.

  4. Thanks for this breakdown.
    It confirms that the “rich” do save and invest more.
    It is embarrassing to note that the average American savings rate is currently well below 3%
    I never had a fixed savings rate but it likely average around a third of gross. Which is about 1/2 of net income. I reached FI in about 17 years so that goes along with what you are saying here.

    1. American Fool

      “It confirms that the “rich” do save and invest more.”

      I sure hope so. Given the enormous difference in discretionary income, if they didn’t save and invest more then their behavior would be vastly more irresponsible than the people making less than they do.

      In any case, please be careful about that statement. First of all, it implies that the poor are less responsible with their money, which is often asserted incorrectly. I know I was a lot more frugal when I made $25K vs now making multiples of that. I think there are just a significant subset of people who can’t manage money, in every socio-economic group. Note also the difference between mean and median, which has implications in every grouping above.

  5. in the zuckman chart above with savings rate, is this saying the cutoff for the top 1 percent is 38% savings, or is it the average? In addition is this gross or net and does this include retirement savings to 401k, etc?

  6. Military officer stationed overseas here. My savings rate is a bit extreme and probably not a model other people can mirror, but at 75-80% it’s an achievement that I’m proud of. With bonuses and tax-free housing allowance and cost of living allowances, I’m netting about $18K/month, and together with spouse we are netting $24K. Biggest expense is housing. 2.875% mortgage on a Manhattan coop apartment (my spouse lives in it while I am stationed overseas) and monthly maintenance of $1525 gives us housing expenses of roughly $5K a month but really it is $2600 (since 2400 goes towards paying down principle on the mortgage I subtract that). I have no housing expenses where I am. Other major expense is flights to see one another as often as we can, but otherwise expenses are pretty low — shopping in commissaries, $10 haircuts, no healthcare expenses). No kids. Total monthly expenses come in at around $5-6000 and that’s without any hardcore budgeting. Net worth is around 1.3M after working for 15 years (I always saved but it took me a while to get up to this high in absolute terms and percentage terms). We are heading towards a nice pension as well so we aren’t really relying on that money for anything and are pretty risk tolerant with our investment portfolio.

  7. Saving 80 to 95% is foolish to the extreme. What if he dies tomorrow (or soon)? Does the money go to charity?

    One must know and understand what “balance” and “common sense” is all about when it involves life’s choices.

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  12. I would like to know if you think I am sitting good based on age and saving and overall debt. I currently have about 75k in debt that includes me having 3 properties and a car. 1 property is free and clear. The current value of the 3 homes is about 200k even selling at a reduced rate of 20% still brings the vale to about 160k. Total purchase and repair for homes is about is about 120k. I currently cash flow about $1200. My total living expense are about $1000. I just turned 30 and have about $$29k in my 401k and about 15k in and ira and about another 20k in cash.

    1. At your age and motivation to do well, you are doing better than most your age. Property are usually good investments based on location, but also do your own due diligence on other investments to balance your portfolio. I also owned property, but sold them when I retired, because I didn’t want to “manage” anything after retirement. Today’s investment opportunities have decreased substantially from the coronavirus, and nobody really knows when we’ll be back to “normal.” You have a good start; keep at it, and you’ll succeed.

  13. Sam –

    I’m curious, do you consider paying down debt part of your personal savings rate? For instance, if I own a rental property and pay down $10,000 a year in principal, is that $10,000 a year that I am saving?

    1. It’s a good question. I don’t because I’m conservative. I don’t even include my 401k max contribution, only what I save after taxes and 401k contribution to stay conservative. I figure that if my 401k and my property is there for me in 20-30 years, fantastic. If not, then I never relied on it.

      I don’t include the extra principal pay down I lob towards my rental properties either. Maybe I should, as I’m on an aggressive pay down mission now.

      * Why I’m Paying Down My Mortgage And Why You Should Too
      * Pay Down Debt or Invest? Utilize FS-DAIR

  14. Sam, I’m struggling here. I’m saving/ investing while in quite a bit of debt. Conventional wisdom says “Pay debt off fast!!” but the math does not. I owe $300k (at anywhere between 3% – 4.5%). I am paying more than minimums but also maxing my 401k and want to start dabbling with investing. I make approx $215k (just started making that this year after grad school – I’m 31).

    Pay the debt or invest in hopes that my ROI is greater than 4%? I know your pain threshold is 6%. What would you do in my shoes?

    1. Matt, That’s a great income – congratulations.

      Here’s one way to think about the math of paying off the debt: Since you’re using after-tax dollars to pay down the debt, you can factor in your tax rate and think of it as a guaranteed rate of return. For example, 4% divided by your tax rate is probably over 6.5% equivalent.

      Keep maxing your 401k, as well.

    2. Average savings is a very poor metric, because it depends on where one lives and its cost of living. Saving for the long term and where you invest are the important issues. If a worker begins to invest early, and maintains that habit for their entire working career, that’s one important issue. The other is where one invests and how to determine the mix between equity and bonds. Many so-called investment gurus tell you to invest in a mix between equity and bonds based on age. That recommendation is wrong on all fronts. When the economy is strong as it is in our country – growing at over 2% every year, it behooves us to take advantage of it. I’m now 82 years old, and have been investing for most of my working years. When I studied investing for retirement, it mattered where and how much in fees one paid. I found Fidelity and Vanguard to have the lowest fees. Most investment gurus tell you to increase your bond holdings as you get older. At my age, we’re supposed to have 80% in bonds and 20% in equity. Why? Bonds are paying less than 2%. My one year return was 12.3%, because my investments are favored in equity over bonds. Oh, my liquid cash position is 4.5% (under the recommended 5%). So what? I get my social security and I withdraw $2,000 a month from my investments. In this way, I don’t withdraw when my investments when they are at its highest or lowest; it averages out. Over the past 3 years, I withdrew $20,000 less than my gains from investments which was 2.5%. Everybody needs to manage their own money. Financial advisors are paid handsomely that takes away from investment income. That’s my .02c worth of opinion for today.

  15. My net annual income is $12K and I spend $6K to rent a room. How much do you expect me to be saving?

  16. Just for clarification. When starting, do I save 10% of gross monthly income or 10% of net monthly income i.e., after taxes and social security are deducted?

    1. Great questions Renate. If you can start by saving 10% of your gross salary, then fantastic. If not, 10% after taxes is also good. Saving 10% of gross salary is obviously a higher absolute dollar value than 10% after taxes.

  17. The rich save a lot because they can afford to save a lot. When your income is barely enough to pay your bills and raise your kids, you are lucky to save 4%. Easy to bash on the poor when you make enough to make ends meet.

    The rich save a lot *because* they are rich—they are not rich because they saved a lot.

    Plus, let me remind you that the purpose of life is not to save money. To forfeit meaningful experiences while you can enjoy them is more idiotic than saving money while you can save it. I am not saying you shouldn’t save—you should. Just within reason.

    Besides, we pay social security for a reason. If that SS check doesn’t come when we need it, then maybe we can all decide to stop paying SS taxes.

    1. I will hands down take the other side of your argument. I believe a big reason why the rich are rich is because of simple and consistent savings. Good financial habits go a long way to building wealth.

      Check out the millionaire next door.

      What is your current savings rate, age, etc

    2. mysticaltyger

      Obviously you didn’t even read this entry (or clearly it didn’t sink in). We have a 12% savings rate even among those in the top 10% earners. That’s pathetic. Do you really mean to say you can’t enjoy life as a top 10% earner and still save at least 15% or more?

  18. Stringer Bell

    We save 20% of gross. That number goes to 25% when you include employer 401k match. We both received nice raises this year so we expect that number to rise.

    This does not include principal paid on our mortgage. I know some people argue that the principal paid should count as a form of forced savings.

  19. Joe Syracuse

    The chart attached to this story is incorrect (although it could just be a labeling error). It is saying that from 2005 to 2014 the fall in TV prices is greater than 100%. I have yet to be paid to take a TV from a manufacturer.

    It also is saying that there has been a 23% overall increase which would mean college tuition and fees would dominate all other costs (all other costs have risen less than 23%).

    1. Excellent observation! What it’s showing is probably negative value of the same TV now vs 2004.

      I tried to give away my 2003 50″ projection HDTV on CL and nobody wanted it. It was heavy, huge, and old tech even if it was brand new.

      Technology has advanced so far that you can pay someone to accept old new tech!

  20. I think it also depends on what type of saving you are talking about. I have this conversation with my wife often. If we are saving in mutual funds and/or retirement – that is much different than saving for a vacation next year or to buy a car in cash (consumption). One of these truly leads to an increase in wealth, the other is delayed customer consumption. Just a thought.


  21. I find your advice for a savings rate to be ironic. Most Americans take on debt until it hurts! Understanding why we do the exact opposite than what we should psychologically would make a fascinating conversation.

  22. I would like to know the median household income. The 1% can skew the mean average up quite a bit. Truth is that it would probably be in the 100k range. The minimum pretax savings should be the 401K match of the company and max out the IRA. You should then save you net income as well after the rainy day fund is complete.

  23. Have you ever done a poll where you have your readers do a poll to select their approximate net worth? That would be cool to look at… I am new’ish here so not too sure if it has already been done.

  24. 64%/91% is huge!

    The $86,000 in after-tax savings on a $102,000 after-tax income is incredible. Could you share your expenses on how you lived on only $16,000 in 2013? Care to write a guest post perhaps in addition to a comment? I’d love to know how long you’ve been saving at such a high rate, your plans for retirement, and how big of a nut you’ve accumulated so far.


  25. I am one of the few that voted as saving 91% and above of my total income. I have mentioned my story here a few times in other posts. But here it is again incase others are wondering. I am currently working overseas on a contract position for an American company for the past 3 years, my taxes are very very low due to generous IRS tax laws for those who spend over 330 days outside of the USA a year, and any tax deductions due to foreign taxes paid. This life is great for a single person! It would be tricky to have a family were I am. I have no bills, no debt or anything owed. My company also pays for housing and has a meal plan too. The only thing I spend money on is vacations, entertainment and anything else I may need. Without the cost of a car, insurance, fuel, rent/mortgage I can really save up out here! If your feeling a little adventurous look into companies that are hiring for overseas positions… It’s worth it, you can save and still travel and have a good time, without the costs of day to day things back in the states. The biggest cost saving factors for me being overseas, is housing is paid for, food allowance covers what I get, not needing to own a car.

    1. Financiable

      Expat assignments can be incredible for the bank account. I lived and worked overseas with my wife and two small children and it was a financial windfall. Housing, car, school and all medical costs were paid for we even got a stipend for sunglasses. I scratch my head everyday as to why we left considering our housing and school/pre-school are the two biggest line items in our budget as a percentage of income.

      1. I’m going to ride this out as long as I can! I don’t see why not… If I return to the states I basically will take a 50% pay cut! Also probably take a hit on about 25% of the perks which equal to savings for me. Quality of life will go down for me! Plus a big perk for me is the amount of time I get off and the ease of traveling to nice places. Also every time I have vacation days slotted, the company pays for my airline tickets(1200-2000 dollar value) round trip.

        1. Financiable

          Yes the extra benefits really add up. If you are not married and have a family I would suggest staying as long as you can. Our decision to return to the states was purely family driven (i.e. aging parents, kids starting school). In retrospect we think we made the wrong decision. I had 40 days off that you were actually encouraged to use and paid annual flights home. Notwithstanding, all that glitters is not gold and I did have the feeling that I was going to get trapped in a career tunnel if I stayed as they generally hire expats to do one specific job, the upward mobility was limited. My wife and I joke about returning or heading on to another expat assignment the day we drop our youngest off at college. Though with the world flattening, I don’t see expat packages continuing into the future.

  26. Sam, I’d like to hear a few of the stories from the ones who are saving >91% of their income. How, and maybe even more intriguing, why?

      1. Well I qualify per your criteria. I currently save 92% of my net income. I’m an EE student, I have a full ride to college that pays everything for me and gives me extra money on the side. On top of that I started working for an engineering company making approx 48k a year as a rising senior intern. Plus I have investment income from money I started saving since middle school. Because of the market collapse I wasn’t to keen on hoping into stocks so I bought guns to flip, rolex’s to flip and helped my parents credit card debt of approx 30k by paying it off for them and beating the cc rate by 2% lower. So I made roughly 7% on 30k risk free since they near the top earners with respectable 401k, pensions, large salaries (just spending problems). So I helped create plans to get their debt under control and make money on that as well. They are now credit card debt free (other than their lower loan rate wth me).

        For those doing the math after my scholarship covers everything I’m left with roughly 3k+ a month for entertainment. Being in college most of my friends are broke and can’t afford to do much if anything so it encourages me to save even more because I don’t want to go out alone. So I am able to enjoy myself on 75 a week on average. Also I am an EE student so studying instead of going out allows me to stay in even more.

        Is this realistic for everyone no way!

        Moving on since I’ve done my research for next few years of my life. Next year as I graduate I will move to a graduate EE intern at 70k a year approx. Again, I have a full ride for grad school (work hard and you’ll get it covered, my parents don’t believe in giving me anything so had to work for it all). But I see myself again having the same expenses for grad school with an even higher income. Plus I keep investing the money so grows even quicker. I’ve gone to an extreme saving because I heard Warren Buffett graduated with 112k in NW in 2012 dollars so I’ve made it my goal to beat him (it’ll be close upon graduation).

        Now moving on past graduation my firm pays people in my position with my grades and degree and experience between 95-105k starting prior to benefits. They’ve led me to believe I’ll be closer to 105k (we’ll see). Take home pay I estimated to about 78k + investment income + 401k contributions + employer match. Upon graduation my family will let me live in their studio attached to the house rent free (I will have to pay utilities etc) because they don’t use it except for storage. Because of that I think I can easily live off 1-2k a month (sub 24k) and save the other 50-75k at 23 years old. As my income grows and investment income grows I don’t see my expenses growing much until I decide to move out on my own. The plan is to put 50k a year down on a new piece of real estate for the rest of my life from their until I retire. The thing is to live below your means. Because I have such low overhead I have a lot of freedom. Work hard and you can do it. I didn’t qualify for a single need based scholarship because of my parents income (who didn’t help me) so I had to only get merit based scholarships.

        So the thing is buy what you can afford. My friends live outside their means. Finance cars, do dumb stuff. I only buy investments. My Rolex’s I often times make a few 1000 a flip, guns wait until a shooting crisis and I’ll make 400%. Do your research, and always buy at the lowest price. By going home and searching on amazon you’ll save a lot over a store. For starters you don’t have to pay sales tax if it’s from a store out of you’re state. I refuse to pay retail for anything and that saves me tons. Those dollars you spend extra add up. For me extra investment income.

        I should note I am single with no kids so that helps too. If you need any further info or would like ideas I’m always happy to help :-) I love talking money, investments, saving (wish I could with my friends)!

  27. Bruce Shepley

    Ah, an earlier comment of yours has changed my response in your survey. I had said o%, because I was only paying down debt and was not including pension contributions. I can now say my saving rate is around 70% but maybe I’m going overboard as I am including capital gains.

    I am getting close to being able to walk away from the job!

  28. What do you mean by “net” income? Do I find this on our tax returns? And by gross do you mean everything or modified gross? I think I might be a little confused.

    1. Gross income = income BEFORe taxes or pre-tax items like medical/dental/401k/etc
      Net income = income AFTER taxes and pre-tax items like medical/dental/401k/etc

      That is in the traditional sense anyway.

        1. No, simply take your take-home pay and multiply it by the number of paychecks you have in one year.

          Keep in mind that when you file taxes, you usually either receive a refund or owe some money. The taxable income is not relevant to net income.

          Here’s a little information I wrote up some time ago showing the proof that taxable income are no where near the same as the amount of income that you actually pay taxes on:


          1. My paychecks fluctuate….I’m not a salaried employee. I will take a look at what you wrote though. Thanks!

        2. No. Your taxable income is your adjusted gross income.

          Your net income is your income after all taxes are paid.

          Definitely do your best to thoroughly understand your figures as this will guide you in your income and tax paying strategies for the rest of your life.

          1. I do get it…just trying to figure out an easy way to determine my net since my paycheck fluctuates. I guess I just need to wait until the end of the year to look at my last pay stub. I know I have last years paystubs somewhere.

  29. Julie @MillennialCents

    I would love to see saving rates by age.

    I know for me, when I first graduated I saved around 10% of my salary (Age 19). Now as part of a duel-income couple we are able to save closer to 26% of our salary (Age 28 tomorrow). Hopefully in 5 years- we will be up to 40%.

    Anytime we get a raise we try to bump up our savings rather than our standard of living.

    Very interesting information :-)

  30. Been reading your site for a few months now – Thank you for putting your ideas together so regularly

    Me and my wife (recently married) are putting away about 18% of our gross income (both under the age of 27 and I went to grad school right after college so have only been in the workforce for ~ 3 years). What is your opinion on paying down student loan debt rapidly (my interest rates range from 5.25 – 7.75%) vs saving?

    I could stop putting $ away and pay them off completely in 2 years (really don’t want to sacrifice the gains/compounding) or keep paying about $650 a month and battle through them for years to come (I already decided every penny from raises or bonuses is going to student loans)

    1. At a 5.25%-7.75% student loan interest rate, I think you are getting taken advantage of and you should pay down that debt as aggressively as possible while still being comfortably liquid.

      Welcome to my site!

      1. I agree, it is an incredibly high rate for people trying to better their lives. The worst part is private banks are not allowed to consolidate government loans so students are pretty much stuck with what they get. If anyone has found creative ways around this to get a lower rate please let me know.

        Thank you,

  31. Extremely enlightening piece. There are a lot of retirees in trouble today, but it looks like there will be a lot more in the next few decades. Interesting to see the meteoric rise in college tuition since student loans to pay off that tuition look to be a main reason why people can’t save as much.

    1. I just posted something similar without even reading your post, the amount I pay in student loan interest is making me sick. I can get a better rate by taking a line of credit against my house…..

  32. Sam,

    This week’s CreditSuisse report had Average US NW at around $300k and Median US NW at around $45k.

    These are disappointing numbers, but seem more realistic.

    What do you think?

    1. I think statistics are misleading.

      But I also think these numbers are more realistic, given the low savings rate of 3-4% for the bottom 90% income earners. $45,000 median NW is scary.

  33. Right now, I’m grossing $72k and saving 46% of my net pay (monthly expenses are usually in the $2,000 range, sans mortgage), but this is a contract job with no benefits and it may or may not become a perm job. it’s easy to contribute this much because I paid off my mortgage in 2012. that’s why I’d say it’s key to pay off any big debts like a mortgage, car loan or students loans ASAP, becus until you take care of debt, those debts will still be competing with your retirement savings.

    when I worked f/t in the past, I nearly always contributed 15%, and then once i turned 50, I also contributed the catch-up contribution for those over age 50.

  34. As a lifelong saver, I really do not understand how some people do not save. I started very small and added some every time I had a raise or promotion. I disagree with the “increase saving until it hurts” syndrome. Saving should be a priority! It is the first step to financial freedom whether in retirement or much sooner. At the very least, it have many more choices when you have savings.

    1. How can savings be a priority if it feels so good to spend?

      You can’t just say savings should be a priority for people to start saving. There has to be a proposed framework.

  35. I’m not totally surprised, but it is a little sad to see how terrible most people’s financial futures really are.

    It’s clear that for some reason (maybe cultural, perhaps influenced by govt policies like SS/medicare, or who knows what else) people don’t seem to care nearly as much about their futures as they should.

    I do think that the next 30 years won’t be nearly as prosperous as the last 30 years, but I don’t think it has to be that way. Hopefully we can find creative solutions to battle the core issues of our time: healthcare, education, and jobs!

    1. I think the existence of Social Security and Pensions didn’t create a sense of urgency for workers of the past. Now that they are crumbling, the sense of urgency is rising.

      Another failing gov’t initiative.

      Count on nobody folks.

      1. With all due respect: I would argue that Social Security is one of the most successful U.S. Government programs. The empirical data is substantial if you care to look around. Will the program need modifications? Sure….. Things change over time. People live longer and healthier lives. Maybe raising the normal retirement age is a good idea.

        Social Security is basically an inflation protected pension for every American. I think that’s an excellent thing.

        1. Totally agree with Ace. Poverty rates among the elderly have been cut dramatically because of Social Security and Medicare. The reason people don’t prepare better for retirement is undeniable – our education system doesn’t teach financial literacy. Basically we tell kids what different coins are called, and that’s the end of their economics exposure. Knowing how to manage money is so incredibly important throughout a person’s lifetime, yet the topic is nonexistent in public education.

  36. I love the following point: “humans are adaptable and we will naturally change our spending habits to adjust to our incomes.” This is such a spot-on way to see putting away money. For the most part, we spend what we do because we are accustomed to it. This goes for anything that involves some form of ‘cutting back’- it takes discipline. Thanks for the great advice. I will be sure to share this article with my colleagues!

  37. John C @ Action Economics

    I Think it would be interesting to see the “bottom 90%” broken up into more stratification, to see the difference between people who are in the 70% and people in the 40% etc. I think this side of the equation most likely has a lot of outliers too, I’m willing to bet a lot of the 0% – 25% save nothing, skewing that bracket to around 0%, while a lot of the 70% to 90% may be hitting double digits.

    1. mysticaltyger

      There was a study done a number of years ago for old people with lifetime earnings in the 60th percentile. (i.e. below average lifetime earners). They found a wide divergence in wealth even among that group. The authors of the study found the decision to save was the most important factor between those who ended up relatively well off and those who didn’t. They also found that negative life events could only explain 17% of the differences in wealth. The other 83% was the choices people made….which fits in pretty well with the 80/20 rule.

  38. An aging population can knock down average savings rates. It also brings down spending.
    We need more spending to boost the economy. That’s the reason for stimulus and depressed rates. We need to increase the velocity of money to stave off deflation and keep the economy going.
    We also need more people. Thus, immigration reform. Our birth rates are depressed currently.
    Otherwise, we might turn into Japan.

    1. I agree. Although Japan is coming out of its long funk and damn, they’ve got the best food of all types in the world!

      Here is a proposal to boosting our population, spending, and corporate earnings:

      The Solution To The Gender Wage Gap

  39. I’ve found that setting up automatic investments at the beginning and then mid-month with some pretty substantial cash forces me to up my savings rate.

    The money gets invested and I have less in my checking account to spend!

    1. Good move. Protect ourselves from our spendy selves!

      I try and keep as little as money as possible in my savings and checking account. In fact, I have run negative in my checking (I have an overdraft checking account) just to force the point to save aggressively and keep my spending in check.

  40. Sam – what do you think should be included in the savings rate? Building equity in house? Would you add employer contributions to a 401k to both the numerator and denominator?

      1. Sam,

        I do think using medians makes more sense. Those outliers really pull that mean up.

        It’s been my observation (and experience) that the typical middle class American saves via equity in their home. By purchasing a home and hopefully having a mortgage free place to live 15 to 30 years later; it makes retirement much easier.

        What many people have done successfully is to purchase a sequence of homes over their lifetime using leverage, and constantly upgrading. And then when it comes time to retire; sell the expensive home and then either downsize, or even more common, move to a lower cost of living area of the country.

        I see this all the time. People sell their Chicago home and move to cheaper Florida. Or someone from California cashing out and moving to Arizona, etc.

        And if you look around, you’ll see that. There is no lack of wealth in the USA.

        1. Ace,

          I agree with you on metrics. I like to look at everything.

          If one can indeed buy a home, pay it off before they retire, save even just 5% a year, but collect Social Security, then I think few will be in trouble due to the lack of debt. I do want to address the topic of debt more as I’m embarking on operation mortgage paydown soon.

          I plan to downsize from SF to another place in SF, or relocate at some point.


          1. Sam,

            I have been thinking about this issue quite a bit lately. The problem of a low savings rate in the US is very real. Much of it is cultural and therefore difficult to overcome. On the other hand, it certainly helps grow the economy!

            The biggest family expense is housing. Whether rent or mortgage payments. There is much more benefit to being mortgage free than first appears. Much of this is not quantifiable because it is more psychological.

            Not having to pay mortgage or rent gives family members the freedom to perhaps take on low paying jobs/opportunities which are more personally fulfilling.
            Or, it frees up considerable cash flow; allowing perhaps for some more risky investments.

            There is a lot positive about getting rid of your mortgage quickly. After all: Foreclosure is impossible without a mortgage. I’m actually thinking that as long as a family maintains good liquidity, paying off their mortgage early might be a good goal on par with the usual savings goals. And the thing is, unsophisticated folks can actually understand this concept better.

          2. In fact, trying to quantify this: Let’s say rents in your area for a typical home are $1500/month. Assuming you are mortgage free, that additional cash flow you are now saving is $1500/month. So using a 4% discount rate, that would be approximately equivalent to having a lump sum of $450,000 earning a safe return of 4% per year.

            And it is tax free!

            We could get more complicated here and go into rental growth rates, etc. But essentially, this becomes a perpetuity which could be passed down to your children and grandchildren.

      2. Does this one sound trickier?

        Health Savings Account contributions (or their counterpart Flexible Spending Arrangement).

  41. For 2013, we saved around 78% over gross income. I’m very satisfied with the rate that we are savings since we increased our income but keep the spending, standard of livings pretty much the same except for a few more vacations.

    We just crack the 1% income earner for the first time in 2013 as well. Hopefully will be staying here for awhile as we increasing our NW since our NW is nothing compared to other top 1% income earners.

  42. I started to try to have multiple sources of income and hopefully at least one will start trickling in some money. I am preparing to teach art over weekend that I hope to get me some extra $200 /month or end up adding more hours if needed. This is going to dividend stocks :-)

    1. AWESOME! I love that type of action. Many people have SOME type of teachable skill. Hence, to utilize your skill to teach others and make some extra money on the side is a great endeavor.

  43. In terms of your “discipline in saving” I think you have to consider savings as a percent of disposable income. If you make $30k a year and save $3k that’s darn near 100% of disposable income saved. If you make $60k you’d need to save $33k to claim the same ~100%. If I made $500k, I’d have to try really hard to be anything less than 80%.

    Those of you that make $100k and save $20k and pat yourselves for saving “20%”, and then wonder why the average is only “3%”, you really get blown out of the water in terms of underlying Ability To Save.

  44. The First Million is the Hardest

    Last year I saved about 35% of my gross income. This year will probably be lower due to wedding expenses, but we should get right back on track after we’re done paying for that.

  45. I work from home and only drive a lot Sept-January so I don’t have huge gas bills each month. It’s been a long road, but I’ve finally gotten my wife to start saving money instead of blowing it on who knows what every month. She’s now got 10k in savings which is HUGE for her considering she had nothing a year ago. I save almost 40% right now, but that will go down if we can ever find a house to buy. Our cars have both been paid off forever and they’re both 12 and 11 years old, respectively. Her car has 230k miles on it and gets daily work and it will need to either be replaced or we’ll have to overhaul the motor and start replacing worn suspension parts. And since I do the work we’ll probably sell it. It would cost more than it’s worth to fix it so another used car is in order for us. I’ve been starting to look into dividend growth stocks to invest in so I don’t have a ton of cash just sitting in a 0.9% savings account.

  46. Done by Forty

    The savings rate of the top 10 (er, that between 10 & 1%) is shockingly low. I have a feeling that average may also be hiding some interesting trends (e.g. – some who earn their way to freedom, making so much that even a 5% savings rate still racks up a good amount in absolute dollars).

    1. 1-10%ers have it tough if we’re calculating on a gross savings basis.

      The rough range of salary is $75-300K. At the high end, that’s good money but at the low end the marginal tax rates increase dramatically; I’m in that range and my marginal tax rate at the moment is 47%. And I don’t have any ways to defer taxes through 401K or the like… trust me, I’d be all over that.

      Once you hit 1% income ($380K is the minimum… most make much more) it’s very difficult not to save 40% of your gross unless you’re just outright profligate.

      $2 million income x 40% savings = $800K. Even if your combined tax rate is 35%, that means you have $500K to spend each year… not too shabby.

  47. It really is kind of shocking how little people save. I saved about 15% of my income last year but my income has really dropped now since having kids so this year will be pretty rough I think.

  48. Great topic! I save over 50% of my income, well if investing it Into rental properties counts as saving.

    It is definitely easier to save when you make more money, but it is easier to spend when you make more money too. The key is making sure you save at least a certain amount like you suggest. Pay yourself first!

  49. WallStreetPlayboys

    These charts really are eye popping.

    While the 10% marker is great, it is actually quite difficult to gain any savings momentum at that level. Until you save ~25% it’s tough to get the ball rolling because the gains look so minimal.

    Compounding really is everything, at this point it almost makes more sense to teach young people to save 50%+ from ages 21-29. Why?

    1) they can get away with it
    2) the compounding will make up for life changes in their 30s

    An ex-girlfriend of mine actually gave me this idea (somewhat).

    “It is okay to be an artsy unemployed 20 year old living in hostels, not so attractive at 30 though”.

    Basically, you should save more upfront since no one expects you to be rich, use youth to your advantage. Then let it run. Most people try the opposite where they “catch up” in their 30s, but compounding is so powerful that the 20 year old saver would win.

    Bit of a tangent, but TL-DR looking at the top 1-10% markets, 25%+ seems to be ideal to get serious momentum.

    1. Some have argued that it’s better to spend all your money while young and not making so much because the value of your dollar goes much farther and save more when you make more.

      I can see both sides. The fear is that if you spend all your money young, you won’t be able to change habits when you are older.

      1. I have been on both sides so I can see the argument pro and contra. Personally, I ‘invested’ most of my early pay cheques in self development, social fun, traveling, while aggressively climbing the career ladder and increasing my take home pay. I got to the point where I was making three times more than i could spend in the limited time I had left next to my busy corporate career. I further moved countries to reduce my taxes by 75% and further increase my savings rate. I justified my spending over the years to cope with my work stress – it was ludicrous what I spent while working; looking back almost two years later. At age 34 I took a redundancy from my IT job and together with my life savings, which accelerated through the my career, semi-retired early on a simpler life and focused on reeducating myself. I built up a successful real estate operation from scratch in Eastern Europe, working on a small start-up and, and am teaching diving – my biggest passion in life.

  50. Dee @ Color Me Frugal

    I’m surprised by the fact that the average household net worth is $710,000. But as someone else mentioned, outliers will really skew this number. I’d be interested in what the median net worth might be, since this might be more reflective of what average folks actually have.

    1. Put Bill Gates on an island with 70 other people with no money and the average net worth of the island is $1 billion.

      1. But the median will be $0, which is why medians in conjunction with averages are so insightful.

        Higher average / lower median = a few (very) high-paid outliers like Gates or Buffet

  51. I have no idea what our gross savings rate is because I base everything on net income. It seems logical to do it that way since we can only save what we have after paying off the government. We save about 65% of our net income. That number includes 401k investments, SEP and mortgage principal payments. We could probably do even better but we like to take vacations and have an overall good life/work balance.

    1. 401k and SEP savings payments are applied before taxes are taken out, so you CAN beat the government to your own money!

      Looks like you’re an example of how to do it right.

      1. Right, I contribute max to both but then make sure to add them back in to my net salary and net savings when calculating to get a true picture of our savings rate.

    2. Knowing your savings rate relative to gross income is absolutely an important number to always monitor. As one comment from theUK suggests, savings relative to gross income (unlike net) tells you all about the role of the taxman and keeps that topic at the forefront of your mind. You should definitely track it. We shouldn’t discount that overbearing taxes, especially on the on those who earn and save the most, is the largest obstacle to building one’s personal wealth.

  52. It’s kind of amazing how little most people save, but then again, I’m not surprised. If debt is a major problem for most of America, you have to assume that savings isn’t going to be much better.

    The $710K average net worth figure is interesting, but average is probably a poor metric given the outliers that skew this number. I’d be interested in seeing median net worth, or average net worth by income bracket.

    Personally, I save around 20% of my income pre-tax, and around 30% of my after tax income. And even that doesn’t feel like enough (perhaps it’s because I’m wiping out most of my non-retirement savings this year on some very large expenses).

    1. 20%/30% sounds good to me Eric. Just have to maintain it for as long as possible.

      Your condo purchase is simply an accounting entry change, albeit now your savings become illiquid savings.

      But wiping out savings for the downpayment simply motivated me to save more. I think it will do the same for you guys!

    2. I agree that median is prob. a more accurate reflection. Either way the point of at least 10% savings rate should be taken seriously.

      Also, based on my estimates the average should be around $675k (Current population is about 317 million divided by 2.61 for average household size, the 115 million number is based on data for 2008 to 2012 and the 81.8 trillion number is based on 1st quarter 2014.

  53. When I was working fulltime, I put away into my 401k 21% and then another 4% into savings. Now that I am in an early semi-retirement I am still trying to adjust to living on less. I just can’t bring myself to pulling from my retirement or savings just yet… after all, it has only been 3 months. My goal is to work part-time for living expenses, thus leaving the retirement accounts to when I actually turn 65. Once I adjust, I hope to begin saving again.

    I have to admit, it took me well into my 30s before I became a good saver. I continue to try and educate my boys on the values of saving but it is difficult given the events of the last few years and their low income levels. I must admit, I do see the signs that they may reach the saver level earlier than I did which would be great.

    All we can really do is to continue to try an educate by our actions and our advice.

      1. I assume you mean savings out of earned income. If I were to count 403b increases and home equity as part of my “savings,” the ratio would be quite high.

        Let us assume that everyone achieved a 50% savings rate out of earned income, including minimum wage workers and hourly wage workers below median income. What do you think the effect would be on the value of today’s stocks and bonds?

  54. Might it be more revealing to look at net savings rate rather than gross? Sure I would love to save 50% of my gross income, but since the tax rate in the UK is up to 40% that is not very realistic at the moment. In terms of net income (after tax and other deductions) I’m probably around the 20% savings mark at the moment… But in gross terms it would be quite a bit less.

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