America's Disgraceful Savings Rate

According to Trading Economics, in September 2012 the average american was saving 3.9% of their take home pay (also known as "disposable income" - what a monstrous term). The average income in 2012 was $42,693. That is a savings of $1,665 a year, or $139 a month.  5-6% is sadly what we're told by retirement planners, investment companies, bankers, economists, and everyone else we look to for guidance as an appropriate savings rate. Americans aren't even hitting that on average according to those numbers. Last year, - even while getting my expenses under control - I spent $32,500. $8,500 of that was paying off my car. This year The Frugal Beard is looking at spending $19,500-$23,000. I may go a little over, but not much. And that's for two people as I'm currently supported my significant other while she goes back to college. 3.9% savings rate is why the american people are loosing hope in ever retiring - It's a fixable problem, but they can't see the solution. And how could they? Not even the experts aren't willing to push the truth and marketing is pushing the blindfold back down constantly.

I'd like to make an important point before moving on. Sear this into your brain:

Your income does not determine how much you need to retire.

The amount you need to retire is based upon your expenditure.

It has been shown that reducing you spending is as great of a change, if not greater, than receiving a raise of the same amount. Why is that? By reducing your spending you are helping yourself out (at least) two fold: 

• Reducing yearly income needed in retirement
• Increasing available cash to put into investments

And, if available or applicable to you:

• Reducing your tax burden by increasing contributions to tax-advantage accounts
• Recouping money that would normally be spent on interest-bearing debts.

To make the math very easy to play with, NetWorthify put together an Early Retirement Calculator. Just be aware that the displayed savings rates of each country is out of date. Put in your salary information then the average savings rate of 3.9%, and then move that to, say, 25%. Big difference isn't it?. Lastly, put in 50% - which is easily achievable for most people. You'll notice that by increasing your saving rate, more than anything, reduces the number of years you have till financial independence. I'd like to point out that this doesn't mean you have to retire. It means you have financial freedom to pursue your dreams in any capacity you'd like. If that means you continue being on someone's payroll (or on your own payroll) that's fine.

The current savings rate for most Americans places them at 46-50 years of working till they can retire. Even at 6% (which is consider 'great' savings) there is 40-45 years of work left. This is a disgusting amount of time to reach financial independence. No wonder a lot of people think retirement is a pipe dream with these numbers.