Photo by Andre Taissin / Unsplash

What Your Savings Rate Says About You

Basics Jan 4, 2022

The percentage of your income that you save reveals much about your finances, especially about retirement goals.

If you're not already familiar with the measure of savings rate, it's famously a good indicator of how long you have to work before retirement, caveat to some assumptions built into it. Here's what I read from your savings rate:

0% Savings Rate or Less:

You are in dire straits. ☠
(Or you are just starting out/already retired/on sabbatical/taking a break, yay! 🎉)

Money flows through your hands like grains of sand, which are then cast to the winds. Nothing sticks, no wealth lasts.

If you're spending everything, then either you're trusting in some form of safety net to catch you in retirement (windfalls, social safety nets, pensions, etc.) or you're not expecting to live long enough to retire.

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Tick tick tick, my time is running out. What if I’m already halfway to an early grave? How do I decide if FI is worth pursuing?
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If you're actively spending more than you make by racking up e.g. credit card debt, then you're on a self-destructive path. Consider this a wake-up notice. You need to drastically change your life so that you're not losing money.

The above doesn't apply if you're just starting out your life's trajectory and have student debt. This list is focused on average savings rates over the course of several years. Of course things will be lean when you're just starting out life – it's only when the continue to be lean that you need to worry.

0% to 5% Savings Rate:

You're not going to make retirement on your own – it's a good thing most people aren't alone though 🤝

As above, you're relying on someone else to save for you. Perhaps you're expecting to inherit a house from your parents when they pass. Or you will live with family in an inter-generational household. Regardless, you're relying on external factors rather than your own abilities to hold onto money.

Emergencies will inevitably come, and they will wipe out what little savings you accrue again and again.

0% to 5% savings is a rounding error away from not saving at all.

5% to 15% Savings Rate:

You're doing better than the majority of US citizens, but still not quite making it... 😱

At 15% savings rate, you're just barely managing to hit a "normal" retirement age around 65 – if you start early enough.

That said, you're making positive progress. Keep getting better, and you'll be in a strong position. I tend to see the world in terms of rates of change, so a 5% to 15% savings rate still means you're growing your reserves:

You Can’t Hold Things Steady In Time
Life is not static. It’s constantly changing. My engineering mind sees the world in terms of rates of change: if you don’t grow something, you lose it.
Either you're gaining or you're losing savings... Or fluctuating somewhere in the middle!

There's a lot of mainstream articles recommending 15% savings rate. Getting more people doing any amount of saving is good. Yet you should recognise that 15% is dishearteningly low.

If you want to get serious about reaching retirement on your own, you need to strap down and do more. Which leads us to:

15% to 25% Savings Rate:

Congratulations, you've truly launched on the journey to financial freedom 😇

This is the first inflection point where retirement begins to come at earlier and earlier ages, starting with 15% savings rate giving you approximately 43 working years. You're able to achieve financial independence/optional retirement on your own – within one "normal" lifespan.

On the higher end of this range (20% and more) you're in Slow FI territory.

In general, this range is healthy for normal people leading engaged lives. You're not necessarily a FIRE enthusiast, but you have good personal finances.

25% to 45% Savings Rate:

You've turned the elbow and are on the path of Slow FI! 🤘

If you're not familiar with the idiom, turning the elbow is an expression amongst maths types. It means that you have received most of the benefits, and that further improvements give diminishing returns. In short, it's like getting 80% of the way there with 20% of the effort.

In this 25% to 45% range, you likely lead a comfortable lifestyle – especially if you've chosen the Slow FI route. You probably work less than the average person, or work a job you enjoy immensely.

With this kind of savings rate, you can expect somewhere between three decades to two decades of work before you're able to retire.

45% to 65% Savings Rate:

You're a FIRE enthusiast with discipline and luck on your side 🔥

I fall into this range, and it's a good blend of rapid wealth amassing and pleasant living. There's room for improvement, but no driving compulsion to cut down and save further.

After all, why cut down further when you're already living the kind of life you wish to have? You are likely intentional about your spending in this range, and trimming expenses would come at the cost of decreased quality of life.

This range falls into the two decades to one decade range for hitting optional retirement.

65% to 85% Savings Rate:

You're effective and aggressive about savings! 😤

It's not just that you decided to save money; you came up with a plan and shaped your life around it. Not everyone is privileged enough to make it here consistently, though they may peak into this range for months at a time – like when I lived with family and had next to no expenses.

You're looking at a decade or less to retire. It's most likely a sprint for you, not a marathon; your desire is to make your FI fortune and then move on to the next project.

85% Savings Rate or More:

Congratulations, you're an outlier in terms of savings! 🥳📈

Either you've hit the extreme of low costs, the extreme of high income, or some powerful combination of the two. You're either intentional about savings, or you literally make money faster than you can spend it.

If you're intentional about savings, it's worth re-examining your intentions. Are you later in life and trying to catch up your retirement savings? Or are you young and sprinting to an early retirement? If the latter, perhaps you can consider slowing down to enjoy your youth a little more. Your retirement is not guaranteed, after all.

Closing Thoughts

Obviously this post is on the lighthearted end of things. There's a whole load of assumptions and stereotypes crammed into each of these savings brackets, so don't take any of it too seriously.

For other posts about the basics of personal finances, I shall call to your attention this one about sinking funds:

What is a Sinking Fund?
Do you have a large one-off purchase coming up in the future? Start setting aside money now! This is the basic principle behind sinking funds.
An overview of a useful personal finance tool



Mistress of the Home, responsible for all matters financial. A loving Domme tempered with ambition and attention to detail.