Americans Can Save A Lot Of Money If We Want To, Don’t Worry!


During the pandemic, we learned that Americans can save a lot more money if we want to. Take a look at the historical American personal saving rate chart according to the U.S. Bureau of Economic Analysis and the St. Louis Fed.

American personal saving rate chart percentages

After lockdowns began on March 18, 2020, the U.S. personal saving rate skyrocketed from a respectable 9.3% pre-pandemic to an impressive 33.8% in April 2020! Americans suddenly decided that saving money during a time of great uncertainty was a priority. So that is what we did.

As the initial six-month shock of the pandemic began to wear off, Americans decided to lower our saving rate to 13.3% in November 2020. Then, when news of a new strain of COVID emerged in the beginning of 2021, Americans decided to increase our saving rate again, reaching 26.3% in April 2021.

Since April 2021, the personal saving rate has steadily declined thanks to vaccines, experience, and the desire for most of us to get on with our lives.

Today, the U.S. personal saving rate is around 3.1%, which is a low not seen since January 2008.

Americans Can Save More If We Want Or Need To

Since 2009, when I first started writing on Financial Samurai, I’ve noticed some people like to bag on the state of America’s personal finances. I was one of them, with posts such as Retirement Savings By Age Show Why We’re Screwed.

At the time, I thought to myself: How is it possible the median retirement savings amount for 32 – 37-year-olds was only $480 using 2013 data? Meanwhile, the median retirement savings amount for 56 – 61-year-olds was only $17,000.

Even if we quadrupled the amounts for 2022 and beyond, the retirement savings amounts aren’t enough to live a comfortable retirement lifestyle.

median retirement savings by age

I got fired up to write more personal finance articles to help people save and invest more for their future. But what I realize now is I simply hadn’t lived long enough to see how well people can adapt.

Almost a decade has passed and the typical retired American is not screwed. We’re not hearing about a retirement crisis where 60+-year-olds are getting thrown on the streets because they don’t have enough money to pay their bills.

Instead, the typical American has grown wealthier. We might not be happier, but at least as a whole we’re more financially secure than in the past.

Why Are Americans Doing So Well?

Despite paltry median retirement savings amounts, the typical American is doing fine.

The majority of Americans have benefitted from an extraordinary rise in home prices since 2013. The combination of rising home prices, rising home equity, and declining mortgage balances is a huge win for the ~68% of Americans who own real estate.

Home equity - Why Americans are doing so well
Median home prices - why Americans are doing so well

For the 32% of Americans who don’t own real estate, the common belief is that renters save and invest the difference. Thus, the stock percentage ownership amongst renters may be even greater than the estimated 56% of all Americans who own stock. Stocks have also had a fantastic run since the 2013 Consumer Finance Report.

Real median household income also bottomed in 2012 at around $60,000. In 2021, real median household income peaked at around $71,000.

Real median household income

Finally, both federal and state governments have been supportive during the pandemic. They’ve injected trillions of dollars into the economy via stimulus checks, PPP loans, and more.

Recommended Saving Percentage For Financial Freedom

Whenever someone asks me how much they should save to get to financial freedom, my default answer is 50% of your after-tax income.

A 50% saving rate means that every year you save is one year of freedom bought. Save 50% for 20 years and you’ve bought yourself 20 years of freedom on the back end. The math is intuitive and easy.

A more nuanced recommended saving percentage answer is to have everybody max out their tax-advantaged retirement accounts. Once that is done, save at least 20% of your after-tax, after-retirement contributions income.

Maxing out your 401(k) should become automatic. Your focus should be on building as large of a taxable investment portfolio as possible. It is your taxable investments that will spit out enough passive income so you can live more freely.

Your saving rate will be determined by your income and your expenses. But your saving rate will also be determined by how badly you want to retire early and do something new. As we’ve seen in the personal saving rate chart by the St. Louis Fed, we can save more if we really want to.

Financial Freedom Saving Rate Recommendation Chart

Here is my financial freedom saving rate chart from Buy This, Not That. The higher your saving rate, the sooner you will be free.

My book has plenty of charts as financial guides to help you build more wealth in a risk-appropriate way. When it comes to your money, don’t just wing it. Be all over your money.

Recommended saving rate chart by age

Don’t Count Out The American Saver

No longer do I believe the typical American is going to face a difficult retirement. Many of us have the ability to save more money when situations deem it necessary. We will also rationally spend more money when we feel more secure.

Think about it. If your doctor told you there is a 90% chance you’ll die within one year if you don’t lose 10 pounds in the next three months, don’t you think you would do everything possible to lose weight? Most able-bodied people would.

Don’t count out free will!

We can also accept the new three-legged retirement stool where we rely only on ourselves for retirement. Relying on other people to save us is not a good financial strategy!

Then, when we reach a traditional retirement age, Social Security provides us with an added “bonus.” The maximum Social Security benefit is over $4,200 a month in 2023. Surely, most of us can live just fine off $50,000 a year once our homes are paid off.

We May Be Saving Too Much

For personal finance enthusiasts with above average net worths, we will likely die with too much money. A lifetime of frugality and savvy investing is hard to change. Therefore, we must work on decumulating our wealth so we don’t ultimately waste our youth.

Of course, there will always be people hurting for money. But I’m confident these people will rationally take action to improve their financial situation over time.

With so many free resources online and affordable personal finance books to read, personal finance education is heading up and to the right! The average person will rationally take the right steps to improve a suboptimal situation.

Let’s just hope the average person also doesn’t get into revolving credit card debt. Now that would be irrational!

Personal saving rate versus credit card debt

Reader Questions And Recommendations

Readers, do you believe Americans can save a lot more money if we want to? Why do you think Americans don’t save more money like citizens from other countries do? Is our low saving rate a sign of financial health? What is your personal saving rate?

In addition to buying Treasury bonds with your savings, CIT Bank also offers an attractive 18-month CD rate at 4.25%. Before the Fed started aggressively raising rates, Treasury bond yields and CD rates were under 1%. You can check out the 18-month CD here to take advantage of higher guaranteed returns.

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