The average U.S. personal saving rate (as a percentage of income) over the last few years has hovered between 5 to 7%, but now it’s all the way back down to 4.4% (near a historical low) as of early 2025. But what goes in to the BEA‘s (U.S. Bureau of Economic Analysis) personal savings rate calculation is a bit misunderstood. So I thought I’d dive in to it here.
There are a lot of incorrect sources on the web that claim retirement savings in 401Ks and IRAs are not included in the government personal savings rate calculation. They claim that personal savings is basically calculated by taking non-retirement savings and dividing by take home income. Although much easier to calculate, and in some ways more relevant if you’re looking for a barometer on early retirement, this calculation is not what the government uses.
The BEA does factor in employee and employer retirement contributions to 401Ks and IRAs into their personal savings rate calculation. And suddenly, that 4.4% personal savings rate number looks pretty paltry, doesn’t it?
Want to calculate your own personal savings rate? Why wouldn’t you? Here’s how to do it…
How to Calculate your Personal Savings Rate:
In order to calculate your personal savings rate:
- Step 1: Add up net savings (or losses). This includes non-retirement savings and your retirement savings for the year (all personal retirement contributions + all employer retirement contributions). Capital gains or losses should not be factored in – just the contributions. This number could end up being negative as well, if you had net debt for the time period, instead of savings.
- Step 2: Calculate total income. Add your total take home income (after tax income) to your employer retirement savings.
- Step 3: Divide. Personal Savings Rate = Step 1 (all savings or debt) / Step 2 (all income)
Here is an example in action:
Let’s hypothetically assume that I save $5,000 in my 401K and $2,000 in an IRA. My employer matches $1,000 in my 401K. I have an additional $2,000 saved outside of retirement accounts. My after tax (take-home) income is $40,000.
- Step 1: calculate net savings: $5,000 + $2,000 + $1,000 + $2,000 = $10,000 (net savings)
- Step 2: calculate total income: $6,000 (401K contributions) + $40,000 (take-home income). Note that the IRA contributions and non-retirement savings are not added because they come out of take home income (no need to count twice).
- Step 3: divide net savings by total income to get personal savings rate: Personal savings rate = $10,000/$46,000 = 0.21 = 21%
It may help to pull out your most recent paycheck to complete the calculation. Once you have the numbers, it’s much easier than it looks. Want to take things a step further? You should also calculate and monitor your personal inflation rate to help monitor and prevent lifestyle creep!
What is your Personal Savings Rate?
- What is your personal savings rate?
- Do you feel good about this number?
- Why are you saving this amount?
Related Posts:
- The Millennial Personal Savings Rate is in. Sound the Alarms
- The Shockingly Low Amount of Retirement Savings per American
- Personal Savings Rate by Country
- Safe Withdrawal Rate: how to Calculate how Much you Need to Retire
I’m saving 20.9% of my net income but I don’t feel good about it. My husband started retirement savings late plus we are going to have to move for his job in three years which will be expensive. I will be comfortable with our savings rate once we increase it to 30%. 20% towards retirement and 10% towards general savings.
Where does paying additional principle on loans fit into the equation? Could you think of it as non-retirement savings since you COULD be using it to pad a savings account if you wanted to?
I would. It is home equity and when you go to sell the house, it is money that will come back to you. It’s not the most liquid form of savings, but that doesn’t make it any less important.
I’m saving about 55% currently. I feel great about this number because I know I’m setting myself up well for the future, while I’m still able to enjoy myself (in a frugal manner) in the present. Since I started saving and living frugally early (beginning with my first job out of college), I’m used to the high savings rate and I don’t “miss” the money that goes straight to savings.
I’m saving this amount to be secure in the future, but also because I’m naturally a saver, not a spender.
Nice, Rik!
I give you a lot of credit, but personally I would be afraid of dying before realizing the benefit of such a stringent savings plan.
Hopefully, and I mean this, you live well into your 90’s so you can enjoy all the sacrifices you made.
, Sincerely, Ray
At a 55% savings rate, if he’s being smart with his money, he won’t need to live to 90 to reap the benefits. He could potentially retire in just under 15 years.
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Only saving 12.8% this year, but paying off debt. Next year should hopefully be much higher!
I just upped my retirement savings to 25% and my wife and I are living off just my take-home pay. We are putting her entire take-home pay into savings. We are also contributing the max to a Roth IRA for my wife and one for me. We feel this is a very simple method to save as much as possible while we are still in our 20s. Even though my savings rate is 26%, it would probably be above 30% if I compute my wife’s and mine together.
Only 12-15% this year for my wife and I, but we just paid cash for our wedding so most of what normally would have been savings went to that this year plus we just moved and my wife was out of work for about 2 1/2 months so we were relying exclusively on my salary for our bills. I think next year will be around 20-30% excluding extra payments on our mortgage and paying off her student loans. It’s been a year filled with outliers that makes any analysis of our finances completely pointless.
5% is the average savings rate in the US??? That could be had with a 3% 401k contribution plus a 2% employer match–and that won’t get you very far for retirement, let alone everything that happens between now and then!
What makes it even worse is that prior to the recession, the savings rate was hovering somewhere between MINUS 2% (meaning, dissaving!) and plus 2%. No one was saving at all.
We should be saving at least 10%, and that’ll be just enough for retirement only for people in their 20s and 30s.
So far this year my 457B + HDHP HSA are almost 35% of my pre-tax income (not including my savings of $100/paycheck).
That makes me feel good, however I just recently backed down my 457b contributions from $200/paycheck to $50/paycheck b/c it was getting uncomfortable for us.
48.73% savings…but I’m cheating because it’s too depressing to actually account for my student loans (the ONLY debt I have). I figure since I am paying them off at break neck speed (30 year loans in 6 years), that I’ll allow myself this “little white lie/illusion” for the moment.
And to answer the question of what I am saving for:
1) Eventual down payment on a house, which, in DC, should only take me a decade or so to achieve
2) Eventual new-to-me car (when my current car goes wheels up)
3) Emergency fund
I’m at 10.7% with all of my “excess” income going toward debt reduction.
I’m at 33% if I don’t count the extra amount I’m putting towards the principal on my home. If I count that then i’m at 44%. this is what our annual savings rate is if calculated just by our auto-drafts to savings and investment accounts. We also add in any “excess” each year after tax season.
Given this calculation I’m actually at a 60% savings rate. When my rent costs increase (which they are bound to within the next year or two), my savings rate will be about 40%. Right now I’m pretty evenly split between retirement and non-retirement savings contributions.
If I save money for retirement but the fund’s result is a net loss for me, does that count as a negative?
:(
Make sure to diversify your investments. Unless you are investing in a business of your own or one you believe in and it’s consuming all your cash (and if you are doing this be aware it’s a big risk), you need to spread your risk. No diversified portfolio should have lost money in the past 4 years.
Just under 20% this year and closer to 30% if I include the additional principal paid toward my mortgage.
The results of your surbey are very interesting. Clearly your readers are saving well above average. It would be interesting to see the break-down based on age, number of children, and size of household. We save about 5-10% of our income. This is not enough to retire in luxury, but we knew there would be sacrifice when we decided to have threee children. We’re in our 30’s so our peak earning years should be ahead of us…time to play catch-up.
After working through this little exercise, the numbers work out to ~60%. This looks great on paper, but I still think I should be saving much more than I am. Does anyone else feel that way?
On a side note, for those who save a serious chunk of their money, do you find yourself feeling guilty for that? I’m only asking because I was talking to my mate about friends and family members always trying to mooch off me. I’m always torn between feelings of guilt and anger which makes me think that I should be saving even more. I’m kind of curious about how others deal/don’t deal with it.
My goal is to get to the 75% mark :) I woud feel very happy with this, knowing I am living WELL below my means. I don’t understand why that would make you feel guilty or angry though?
I took my savings that come out my paycheck into ING + my 401k contribution.
Thank I added up my income plus, 401k contribution+401k employeer match.
Thank divided that by my take home pay.
Is this correct? I did not back out any debt payments, or expenses. also not sure why I included 401k in both savings and income? I see adding the match to the income, but not the amount I put away? or do you do this because the 401k contribution is not included in my take home pay?
sorry, head spinning.
40%-50% currently. With job change (no more long commute,yay), probably closer to 50%-60% from the saving from gas and eating out.
I still spend on entertainment (although not as much as the typical American) and I go on vacation every year. I don’t feel deprived. Housing and automobile expenses make up the two largest chunks of my budget. Putting a cap on those help.
Last year probably 35% (this does not include the money we invested in my husbands business – not sure if that counts, although it increases our annual income). This year probably about 50%. Have a 3 yr old, otherwise it would be more!!
+I think i’m around 10-15%, with my new apartment, and it makes me nervous.. I want to get to 50%+ and hope to change this as i get a new higher paying job.
I wonder though what the average savings rate is and if these savings are saved till retirement? Also how do people retire when they have 22k as you mentioned on average?
Personal savings is cool, but one of the topics that consistently seems to come up for 20somethings’ finance is the issue of debt (JC’s post, David’s post, etc).
What about a post or poll on some metric like ‘net worth contribution rate’, which would factor in JC’s & David’s (and my) payments associated with paying off long-term debt (school loans)?
Is those metrics & data worth looking into?
Can’t participate in the poll, because there’s no choice for an undefined number…
get it?
I was at 30% and was surprised because I am so far from my goals and thought it would be lower. I’m glad to be in the company of such avid savers! I used to live in Miami and moved to smaller city, Tallahassee, in FL. There, it’s easier to get a handle on my lifestyle and getting my budget in order.
The score reassured me that I am on a good route but because I am paying off credit card debt, I don’t allow it to go to my head because I have to stay on task and not repeat my mistakes!
I am 27 and according to your method for this calculation I save 58% between retirement accounts, taxable accounts, and cash savings. I’ve never made more than about 60k in my life. I got a late start so I am definitely trying to make up for lost time after digging myself out of debt. Better late than never!
If you got $10,000 as a gift from your parents.. and saved this.. would you count this in your income and saved ..as part of this calculation? .. we’re building savings rate into the next upgrade of Planwise.com so interested to see your thoughts on what should or shouldnt be included to be accurate (and comparable to the BEA rate also)
Vincent, I would add it as income and if you saved it I would count it as saving. It’s money that came in (income) to your bank account, so when your doing the calculation, the calculator wants to know what you did with it.. did you save it, or did you spend it? =]
My savings rate is approximately 26%. But that includes paying $2000 on student loans per month on an after tax salary of $4880 per month. I estimate to be done paying my loans in 6 months and at that point my savings rate will be 74%. I am a SINK with no mortgage, rent or car.
Saving about 37.7% of gross, 54.7% of net income.
In my monthly budget I am taking 30%. Currently I am taking home about $36k after taxes, which leaves me about $2,100 to live on each month, and it’s pretty easy to do, I just have to watch how much I eat out (which I currently allocate $60 per month for) and how many other liberties I take. In the short term, the sacrifices you make will pay off in the long run.
I plan to keep my expenses around the currently $2,100, so any increase in pay will only increase my percentage of spending, NOT my expenses of living or standard of living, which is what ends up biting most people in the ass.
Whoops I mean will only increase my percentage of saving :)
These results are way out of line with the actual U.S. savings rate of about 3.6% 4th qtr 2016 according to Bloomberg. Granted, that’s across the population.
I am saving 78% and it feels pretty good!
Thank you for posting this. The exercise was very helpful. It seems as though there are many conflicting ways of calculating savings rate and what to do (or not to do) with pre-tax and employer contributions . Looks like I am at roughly 45% this year and I am setting a goal of hitting 50% in 2018.
Thanks again!
Between personal savings, 401K contributions and employer match, my savings rate is 34%. Once I include the extra money I put towards my mortgages, my savings rate jumped up to 79%. Dilly dilly!!
Why is the employer match included in step 2? It’s not coming out of the paycheck.
The question is no longer relevant. Thanks