Your Money, Your Future


The average American saves less than 5% of his or her disposable income. Many financial advisers say that isn’t enough to ensure a comfortable retirement.

The personal saving rate, calculated by the federal Bureau of Economic Analysis, has hovered around 5% for the past few years. By the end of June, the rate had dipped to 3.8%, the bureau reported.

Carrie Houchins-Witt, a certified financial planner in Coralville, Iowa, encourages her clients to save 10% to 15% of their disposable income, putting the money in different accounts set aside for emergencies, retirement and other needs.

“I have seen too many people in their golden years being forced to work because Social Security income does not cover their basic expenses,” Houchins-Witt says. “And while I think it’s a great idea for seniors to be active and possibly working to keep busy, I don’t want them to have to rely on that income.”

Decades ago, Americans’ personal saving rate was closer to what Houchins-Witt suggests. From 1950 to 2000, it averaged about 9.8%. It peaked in May 1975, hitting 17% before beginning to slide. At its lowest, in July 2005, it was 1.9%.

Why your personal saving rate matters

If your personal saving rate is lower than what financial advisors recommend, that’s a sign you may not be doing as much as you should to prepare for retirement or unexpected expenses.

For many families, accumulating some wealth is critical for goals such as making a down payment on a home, paying for the kids’ college tuition and maintaining a decent lifestyle in retirement.

Tracking your personal saving rate and taking some basic steps to boost how much you’re setting aside can be important building blocks for a more comfortable future.

OK, what’s next?

Build an emergency fund

This should be your top priority. Experts recommend saving enough to cover three to six months of expenses, but even a small amount will help you weather unexpected costs. Consider getting a side job or selling some possessions to raise extra cash.

Nail down a budget

Aim to dedicate 50% of your income to your needs, 30% to your wants and 20% to savings and debt payments. Set up an automatic savings plan that directs your bank to transfer a set amount to your savings account each month.

Invest in retirement savings accounts

If your employer offers a tax-deferred retirement fund, such as a 401(k), contribute at least as much as your employer will match. Many companies match 1% to 5% of your salary. Look into opening an individual retirement account as well.

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