What Is the Savings Rate?

Definition and Examples of the Savings Rate

Your savings rate is the percentage of income you save after you pay taxes. “For example, if your net income for the year is $50,000 and you save $5,000, then your savings rate is 10%,” Jason Dall'Acqua, a CFP with Crest Wealth Advisors LLC, told The Balance via email.

• Alternate name: Personal savings rate

The higher your savings rate, the more income you’re putting toward building a nest egg and securing your future. 

How Does the Savings Rate Work?

You can calculate your savings rate once you determine your net income, or take-home pay, and how much you save, or your personal savings. 

Let’s say your take-home pay is $82,000 a year. You can then calculate your savings rate using this formula:

Personal savings rate = personal savings / net income

Going back to our previous example, let’s say you save $1,000 a month or $12,000 a year. You can take this number, along with your disposable income ($82,000), to calculate your savings rate: 

$12,000 / $82,000 = 0.146 or 14.6%

In this case, your savings rate is 14.6%.

Why Is Calculating Your Savings Rate Important?

“Your savings rate is important in achieving long-term financial goals such as buying a home, paying for college, and most notably retirement,” Dall'Acqua said. “Gone are the days where Social Security and a pension provide a comfortable retirement, particularly because pensions are less common among private sector companies. People bear a greater responsibility to personally fund their retirement.”

Aim to save 15% to 20% of your income, Dall'Acqua said.

“If you are currently saving below this level, then see if there are ways to increase your income or decrease expenses so you have more cash flow to save. If you’re saving above this level then keep it up.”

National Savings Rate in the U.S.

The U.S. Bureau of Economic Analysis publishes the national savings rate for Americans each month. In recent months, the national savings rate has fluctuated between about 7.8% and 33.8%:

Source: U.S. Bureau of Economic Analysis

One reason the U.S. savings rate has been generally declining this year, according to Dall'Acqua, is that now that people are getting vaccinated and businesses are reopening.

“Savings rates have trended lower over the past few months as the economy has continued to reopen, with the national average back into the single digits,” he said. “People have a pent-up desire to spend, and the data clearly shows that they are doing so.” 

While many Americans increased savings during the pandemics, the savings rate was not universal across income levels, Dall’Acqua said.

“Lower-income households were more negatively impacted by the pandemic due to a higher rate of job loss,” he said. “Higher-income households, on the other hand, saw their spending decline due to lower economic activity, but may not have seen a reduction in income, allowing them to increase saving significantly.”