While your pre-retirement income alone won’t determine whether you’ll be able to retire comfortably, it certainly plays a role. For example, if you earn a middle-class salary, the amount you’re putting toward your nest egg is much less than someone earning millions a year.
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By 2024, the average middle-class income will be between $50,000 and $150,000. If you’re in that age bracket, you might be wondering how your savings compare to the rest of the population. So we asked a 62-year-old retiree who considers himself middle class to see how much he’s saved for his retirement. Since he prefers to remain anonymous, we’ll call him Lopez.
Here’s what his savings look like as a retiree:
Total savings of an average middle-class retiree
“Before I retired, I was making an average of $72,000 a year, which was a middle-class salary. It wasn’t a huge salary, but it was enough to cover my expenses and put a little bit aside for monthly savings,” Lopez said.
He explained that his income comes mainly from his full-time job as a sales representative and a few side hustles like selling used items on eBay.
Savings, investment choices and asset allocation
Lopez’s savings are a mix of different accounts.
“I have an emergency fund that I’ve built up over the years that’s currently about $9,500, and I have most of it stashed away in my Ally high-yield savings account,” he said.
In addition to making sure he has enough money set aside for a rainy day, Lopez has also diligently contributed to his 401(k) throughout his working years, and it now stands at about $250,000.
“The 401(k) is not my only retirement account. I also have some in Roth IRAs, totaling about $100,000,” he added.
Along with those retirement accounts, Lopez has about $110,000 invested in taxable investment accounts, with Vanguard ETFs making up the bulk of his investments.
“Overall, my retirement savings, including these accounts and a few smaller ones, are about half a million, which I’m pretty happy with since I live a frugal lifestyle and don’t spend a lot each month,” he said.
Strategies for building a nest egg
“Building a half-million dollar nest egg wasn’t easy, but it was definitely worth it,” Lopez said.
One of the strategies he used to help him stay consistent in his saving and investing efforts was to take advantage of his employer’s matching contributions.
“I’ve also automated my savings as much as possible by setting up automatic transfers from my checking account to my emergency fund and investment accounts. That way, I’m not tempted to spend too much money every time I get my paycheck, since most of it has already been — or will be — allocated to my retirement savings.”
“I also tried to live below my means, which wasn’t that hard for me, to be honest, since I’m naturally a frugal person and I don’t care about materialistic things much,” Lopez said.
He credits his frugality as a major reason he was able to save massively for retirement on a middle-class income.
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Lessons Learned from Past Financial Decisions
Looking back, Lopez wishes he had done a few things differently to better prepare for retirement. Here are a few:
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I started saving earlier: “I didn’t start saving aggressively until I was in my 30s. I think if I had started even earlier, I could have taken advantage of compound interest and built an even larger nest egg,” he said.
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I worked with a financial advisor: Another thing Lopez regrets now that he’s in his golden years is not having been more proactive about seeking professional financial advice in his 20s and 30s. “While I did my best to educate myself about personal finance, I think working with a financial advisor earlier could have helped me optimize my savings and investment strategies,” he said.
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Create enough passive income streams: Lopez also regrets not devoting enough time and energy to cultivating passive income streams that could help him earn money on autopilot in retirement. While he could always build a business that generates passive income, it takes time to see results.
Overall, though, Lopez said he is still grateful for his accumulated savings and is confident he will enjoy a comfortable lifestyle in retirement with half a million dollars in the bank.
How much savings should you have in retirement?
While Lopez believes she can save $500,000 in her old age, that may not be possible for most Americans, especially if they live in a more expensive city like Los Angeles or New York. According to Fidelity guidelines, you should save 10 times your income by age 67. So, assuming you make $100,000 before retirement, you’ll need to have at least $1 million saved by the time you retire.
Another common rule of thumb for determining how much you need to save for retirement is the rule of 25. First, determine how much you’ll need each year to live your preferred retirement lifestyle. Then, multiply that number by 25. So, to live on $50,000 a year in retirement, you’ll need at least $1.25 million in savings to reach that goal.
Retiring as a millionaire with a middle-class income may seem like a pipe dream, but it’s definitely possible. The key is to invest and save early to let compound interest take effect. Use a retirement savings calculator to figure out how much you need to set aside each month to retire with a seven-figure bank account.
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This article was originally published on GOBankingRates.com: I’m Your Average Middle-Class Retire: Here’s How Much I Have Saved
