Though your pre-retirement income alone isn’t enough to determine whether you’ll retire comfortably, it certainly plays a role. For example, if you’re earning a middle-class salary, the amount you can allocate toward your nest egg will be much lower than someone earning millions a year.
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In 2024, a middle-class income would be in the $50,000 to $150,000 range. If you’re in this bracket, you might be curious about how your savings stack up against the rest of the pack. So, we interviewed a 62-year-old retiree who considers himself middle-class to see how much he’s saved up for his golden years. Since he prefers to remain anonymous, we will refer to him as Lopez. Here’s what his savings look like as a retiree.
Total Savings as an Average Middle-Class Retiree
“Before retiring, I was earning an average middle-class income of around $72,000 per year. It wasn’t an insanely high salary by any means, but it was enough to cover my expenses and put a little aside for savings each month,” Lopez said.
He shared that his income mainly came from a combination of his full-time job as a sales representative and some side hustles like selling secondhand 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, which currently sits at around $9,500, and I have most of it stashed away in my Ally High-Yield Savings Account,” he said.
Besides making sure he has enough set aside for rainy days, Lopez also diligently contributed to his 401(k) throughout his working years, and it’s now grown to about $250,000.
“A 401(k) is not my only retirement account, though. I also have some in Roth IRAs, totaling around $100,000,” he added.
Alongside these retirement accounts, Lopez also has around $110,000 invested in taxable investment accounts, with Vanguard ETFs making up most of his investments.
“Overall, my retirement savings, including these accounts and some other smaller ones, amount to roughly half a million, which I’m pretty happy about since I live a frugal lifestyle and don’t spend that much each month,” he said.
Strategies for Building a Nest Egg
“Building a half-a-million nest egg wasn’t easy, but it was definitely worth it,” Lopez said.
One of the strategies he used to help him stay consistent with saving and investing was taking advantage of his employer-matching contributions.
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“Plus, I automated my savings as much as possible by setting up automatic transfers from my checking account to my emergency fund and investment accounts. This way, I’m not tempted to overspend every time I get my paycheck since most of it has already been — or will be — allocated toward my retirement savings.”
“I also tried to live below my means, which wasn’t that difficult for me, to be honest, since I’m naturally a frugal person and have almost no care for materialistic things,” Lopez said.
He believes his frugality is one of the main reasons why he was able to save aggressively for retirement on a middle-class income.
Lessons Learned From Past Financial Decisions
Looking back, Lopez wishes he had done a few things differently to better prepare for retirement. Here are some of them:
Started saving earlier: “I didn’t really start saving aggressively until I was in my mid-30s. I think if I had started even earlier, I could have taken advantage of compounding interest and built an even larger nest egg,” he said.
Worked with a financial advisor: Another thing that Lopez regrets now that he’s in his golden years is not having been more proactive about seeking out 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 on could have helped me optimize my savings and investment strategies,” he shared.
Built enough passive income streams: Lopez also regrets not putting enough time and energy into building passive income streams that could help him make money on autopilot in retirement. While he can still build a business that generates passive income now, it’ll take some time before seeing results.
Overall, though, Lopez said he’s still grateful for the savings he’s been able to accumulate and feels confident that he’ll be able to enjoy a comfortable retirement lifestyle with a half-million dollars in the bank.
How Much Savings Should You Have at Retirement?
While Lopez believes he’s able to make $500,000 stretch through his golden years, it 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’s guidelines, you should aim to save 10 times your income by 67. So, assuming you make $100,000 pre-retirement, you’ll need at least $1 million saved by the time you retire.
Another popular rule of thumb to determine how big your nest egg should be is the rule of 25. First, decide how much you’ll need each year for your preferred retirement lifestyle. Then, multiply that number by 25. So, if you want to live on $50,000 a year in retirement, you’ll need at least $1.25 million saved to achieve that goal.
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While retiring a millionaire on a middle-class income may sound like a pipe dream, it’s very much doable. The key is to start investing and saving early to let compound interest work its magic. Use a retirement savings calculator to figure out how much you need to be putting away each month to retire with seven figures in the bank.
