How Much Should You Save?
Last Updated: July 17, 2019
Question: When can a 3% savings rate become 7%? Answer: When the Commerce Department changes its methodology. That is what occurred last year, when the Commerce Department realized it had been understating asset income (e.g., rent received from property, and interest and dividends from bonds and stocks). This meant that Americans had been saving more than previously thought. Nothing magic about this but there was a catch: because the revisions were related to asset income, this suggested that most of the upward correction in savings was skewed toward wealthier Americans. Other areas in which the Commerce Department had underrepresented savings included small-business owners’ income and salaries.
For many people, comparing their savings rate to the “average” rate for Americans is a useful benchmark. Given that the rate has now doubled, perhaps there are younger members in your family that want to rethink their plans for building savings.
We are always happy to help our clients’ family members with education savings, financial planning, and 401(k) allocations. Please call us to discuss how we can help.
Source: Commerce Department, Bureau of Economic Analysis, Federal Reserve Bank of St. Louis. Data from 1/1/1990 through 5/1/2018.