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The Average Saving Rate By Income (Wealth Class)

Updated: 01/31/2022 by Financial Samurai 128 Comments

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. Both are free to sign up and explore. 

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. 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. 

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!

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Filed Under: Budgeting & Savings

Author Bio: I started Financial Samurai in 2009 to help people achieve financial freedom sooner. Financial Samurai is now one of the largest independently run personal finance sites with about one million visitors a month.

I spent 13 years working at Goldman Sachs and Credit Suisse. In 1999, I earned my BA from William & Mary and in 2006, I received my MBA from UC Berkeley.

In 2012, I left banking after negotiating a severance package worth over five years of living expenses. Today, I enjoy being a stay-at-home dad to two young children, playing tennis, and writing.

Order a hardcopy of my upcoming book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. Not only will you build more wealth by reading my book, you’ll also make better choices when faced with some of life’s biggest decisions.

Current Recommendations:

1) Check out Fundrise, my favorite real estate investing platform. I’ve personally invested $810,000 in private real estate to take advantage of lower valuations and higher cap rates in the Sunbelt. Roughly $150,000 of my annual passive income comes from real estate. And passive income is the key to being free.

2) If you have debt and/or children, life insurance is a must. PolicyGenius is the easiest way to find affordable life insurance in minutes. My wife was able to double her life insurance coverage for less with PolicyGenius. I also just got a new affordable 20-year term policy with them.

3) Manage your finances better by using Personal Capital’s free financial tools. I’ve used them since 2012 to track my net worth, analyze my investments, and better plan my retirement. There’s no better free financial app today.

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Comments

  1. reinvesting says

    August 25, 2021 at 11:31 am

    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%.

    Reply
    • Financial Samurai says

      August 25, 2021 at 12:40 pm

      Yes, savings. It’s a part of your assets in the net worth equation.

      Reply
  2. James Cortez says

    April 30, 2019 at 2:47 am

    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

    Reply
    • Madeline says

      August 21, 2019 at 10:45 am

      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:
      https://www.financialsamurai.com/how-much-savings-needed-to-retire-early/

      Cheers to you!

      Reply
  3. Lily says

    March 28, 2018 at 7:40 pm

    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.

    Reply
  4. WealthyDoc says

    January 31, 2018 at 7:47 am

    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.

    Reply
    • American Fool says

      October 2, 2019 at 12:33 pm

      “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.

      Reply
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