Americans can save a lot of money if we want to, don’t worry!

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During the pandemic, we learned that Americans can save a lot of money if we just want to. Here’s a look at the historical US personal savings rate chart according to the US Bureau of Economic Analysis and the St. Louis Fed.

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After the lockdown began on March 18, 2020, the US personal savings rate rose from a respectable 9.3% pre-pandemic to an impressive 33.8% in April 2020! Americans suddenly decided that saving money was a priority in a time of great uncertainty. So that’s what we did.

As the shock of the first six months of the pandemic began to subside, Americans decided to lower our savings rate to 13.3% in November 2020. Then, when news of a new strain of COVID emerged in early 2021, Americans decided to raise our savings rate again, reaching 26.3% in April 2021.

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Since April 2021, the personal savings rate has steadily declined, thanks to vaccines, experience and the desire of most of us to get on with our lives. Today, the US personal savings rate is around 3.1%, the lowest since January 2008.

Americans could save more if we wanted or needed to

Since 2009, when I first began writing on Financial Samurai, I’ve noticed that some people like the state of America’s personal finance. I was one of them, with posts like Retirement Savings Show Why We’re Screwed by Age.

At the time, I thought to myself: How is it possible that the average retirement savings amount for 32 – 37 year olds was only $480 using 2013 data? Meanwhile, the average retirement savings amount for 56 – 61 year olds was only $17,000. Surely, Americans will be in a hurt world when we grow up, no?

average retirement savings by age

I’m excited to write more personal finance articles to help people save and invest more for their future. But now I realize that I simply didn’t live long enough to see how well people can adapt.

Nearly a decade has passed and the typical retired American is not screwing up. We are not hearing about a retirement crisis where 60+ year olds are being dumped on the streets because they do not have enough money to pay their bills.

Instead, the typical American has gotten rich. We may not be happier, but at least overall we are more financially secure than we were before.

Why are Americans doing so well?

Despite modest average retirement savings amounts, the typical American is doing well.

Most Americans have benefited from the extraordinary increase in home prices since 2013. Rising home prices, rising home equity, and declining mortgage balances are a big 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 do not own real estate, the common belief is that renters save and invest the difference. Thus, the stock percentage ownership among renters may be even higher than the estimate that 56% of all Americans own stock. Stocks have also done exceptionally well since the 2013 Consumer Finance Report.

Real median household income was also at a low of around $60,000 in 2012. In 2021, the real median household income reaches approximately $71,000.

real median household income

Finally, both the federal and state governments have been helpful during the pandemic. He has injected trillions of dollars into the economy through stimulus checks, PPP loans, and more.

Recommended Savings Percentage for Financial Freedom

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

A 50% savings rate means that every year you save buys one year of freedom. Save 50% for 20 years and you’ve bought 20 years of freedom at the back end. Mathematics is simple and easy.

A more nuanced recommended savings percentage is the answer for everyone to max out their tax-advantaged retirement accounts. Once this is done, save at least 20% of your after-tax, post-retirement contribution income.

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

Your savings rate will be determined by your income and your expenses. But your savings rate will also depend on how soon you want to retire and do something new. As we can see in the personal savings rate chart by the St. Louis Fed, we can save more if we want to.

Financial Freedom Savings Rate Recommendation Chart

This is my Financial Freedom savings rate chart from Buy This, Not That. There are lots of charts in my book that can be used as a financial coaching guide to help you build more wealth in a risk-appropriate way.

Recommended Savings Rate Chart by Age

Don’t Count the American Saver

I no longer believe that the typical American will face a difficult retirement. Many of us have the ability to save more money when we need it. When we feel more secure, we will rationally spend more money.

Think about it. If your doctor told you that if you don’t lose 10 pounds in the next three months, you have a 90% chance of being dead within a year, don’t you think you’re doing everything possible to lose weight? Will you try? Most capable people will.

Don’t count free will!

We might as well 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 additional “bonus.” The maximum Social Security benefit in 2023 is over $4,200 per month. Sure, most of us can live well on $50,000 a year once our homes are paid off.

we are saving a lot

For those of us personal finance enthusiasts reading Financial Samurai, we are likely to die with too much money. It’s hard to replace a lifetime of frugality and savvy investing. So, we should work on reducing our wealth so that we do not end up wasting our youth.

Of course, there will always be people nagging for money. But I’m sure these people will take rational steps to improve their financial situation over time.

With so many free resources online and affordable personal finance books to read, personal finance education is on the way up and to the right! The average person would rationally take the right steps to rectify a sub-optimal situation.

Reader Questions and Activities

Readers, do you believe that Americans could save a lot of money if we wanted to? Why do you think Americans don’t save as much money as citizens of other countries? Is our low savings rate a sign of financial health? What is your personal savings rate?

For more in-depth personal finance content, join 55,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently owned personal finance sites that started in 2009.

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