The Average American's Savings Balance Might Surprise You

Americans may have more money in the bank than you'd think.

We often read that Americans are woefully lacking in savings. But new data from Northwestern Mutual says otherwise. Its 2020 Planning & Progress Study reveals that Americans have an average of $65,900 in personal savings. That figure does not include money specifically designed for retirement, like money in an IRA or 401(k).

If you're surprised by that figure, you're probably in good company. Also, you may be sitting there thinking "How does the typical American adult have close to $66,000 in the bank when I'm happy I have just a few grand?"

But before you flip out, let's discuss a couple points about this data. First, it's based on a sample size of 2,702 adults. Let's be real -- that's a negligible fraction of the total number of adults in the U.S. Another thing to notice is that we're given an average U.S. savings balance of $65,900, but not a median.

Here's why that's important: In any data set, it's possible to have a handful of numbers skew an average upward. That's why it's also helpful to look at median savings. If a much larger number of people have less than $65,900 than more, it's clear that a few whopping savings balances drove the average up. Since we're not privy to that data, it's impossible to know.

Here's what we do know: A lot of people don't have $65,900 in savings -- not even close -- so rather than focus on what the typical American has, you're better off focusing on what you have, and what you need.

How much savings should you aim for?

As a good rule of thumb, you should always have three to six months' worth of living expenses tucked away in a savings account for emergencies. That way, if you lose your job, get hit with a costly home or auto repair, or run into another expense your paycheck can't cover, you'll have a means of paying that bill without going into debt.

But you may want savings beyond six months' worth of bills to cover additional goals. Say you're hoping to buy a house and want to make a 20% down payment, which is generally standard. You don't want to use your emergency savings to buy that property, so instead, you'll need extra money in the bank to make that happen. Similarly, you may want savings to pay for vacations, holidays, or weddings (either your own or the cost of attending other people's). Therefore, while having six months' worth of living expenses in savings is a solid start, there's generally a good reason to exceed that threshold.

But do you really need close to $66,000 in savings, especially given the low interest rates you'll get in most bank accounts today? Well, it depends.

If you typically spend $10,000 a month on bills, then $65,900 isn't an outrageous amount of money to be keeping in cash. Similarly, if you're stashing funds for a home down payment in the bank, then $65,900 is a reasonable amount to have on hand. But let's assume you already own a home and aren't paying for a big event like a wedding. In that case, you might sock away six months of living costs for emergencies plus, say, another $5,000 to $10,000 for vacations. Then you could put the rest of your money to work in a brokerage account, where it can earn a much higher return.

Americans are doing surprisingly well -- or are they?

An average savings balance of $65,900 is unquestionably impressive, but that figure may not be all that accurate. If your savings account balance is nowhere close, but you have a good six months' worth of living expenses in the bank, you can rest assured that you're doing pretty well -- even if you don't have anywhere near what the average American supposedly has.