What is your Personal Savings Rate? How to Calculate it.

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 2% (a historical low) as of early 2023. 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.

personal savings rate

The BEA does factor in employee and employer retirement contributions to 401Ks and IRAs into their personal savings rate calculation. And suddenly, that 2% 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?

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