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While your pre-retirement income alone can’t determine whether you’ll be able to retire comfortably, it certainly plays a role. For example, if you earn a middle-class salary, you’ll have a lot less money to put aside for savings than someone who makes millions of dollars a year.
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In 2024, the middle class will have an income between $50,000 and $150,000. If you’re in this bracket, you might be wondering how your savings compare to others. So we interviewed a 62-year-old retiree who considers himself middle class, whom we’ll call Lopez, to find out how much he has saved for retirement, as he wishes to remain anonymous.
His savings for retirement will be:
Total savings of the average middle-class retiree
“Before I retired, I was making the average middle-class salary of about $72,000 a year. It wasn’t a crazy high salary, but it was enough to cover my living expenses and put a little towards savings each month,” Lopez said.
He said his income comes mainly from a full-time job as a salesman and side jobs such as selling second-hand items on eBay.
Savings, investment choices and asset allocation
Lopez’s savings are split between several accounts.
“I’ve been saving up an emergency fund for years and currently have about $9,500, most of which is in my Ally High Yield Savings Account,” he said.
In addition to having a large fund set aside for rainy days, Lopez has also contributed diligently to a 401(k) plan throughout his career, and his savings have now grown to about $250,000.
“But the 401(k) isn’t my only retirement account. I also have some Roth IRAs, totaling about $100,000,” he added.
In addition to those retirement accounts, Lopez has about $110,000 invested in taxable investment accounts, most of it in Vanguard ETFs.
“My total retirement savings, including these and other smaller accounts, is about $500,000. I’m pretty happy with this amount because I live frugally and don’t spend that much money each month,” he said.
Savings strategies
“Saving $500,000 wasn’t easy, but it was definitely worth it,” Lopez said.
One strategy he used to continue saving and investing was taking advantage of employer matching contributions.
“I’ve also automated as much of my savings 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 every paycheck because most of it is already being put toward, or will be put toward, retirement savings.”
The story continues
“I’ve tried to live within my means, which honestly hasn’t been that difficult for me because I’m naturally frugal and don’t really care about material things,” Lopez said.
He believes his frugality is one of the main reasons he’s been able to save aggressively for retirement on a middle-class income.
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Lessons learned from past financial decisions
Looking back, Lopez wishes he had done some things differently to better prepare for retirement. Here are some of them:
Started saving earlier: “I didn’t start actively saving until I was in my mid-30s. If I had started earlier, I believe I could have taken advantage of compound interest and built a much larger savings,” he said.
Worked with a financial advisor: Another thing Lopez regrets now that he’s in the prime of his life is not being more proactive in seeking professional financial advice in his 20s and 30s. “I did my best to educate myself about personal finance, but I believe if I had worked with a financial advisor sooner, I could have optimized my savings and investment strategies,” he said.
Build a sufficient passive income stream: Lopez also regrets not investing enough time and energy into building a passive income stream that would automatically bring in money after retirement. You can build a business that generates passive income, but it takes time to see results.
But overall, Lopez said he remains grateful for the savings he’s made and is confident that with $500,000 in the bank, he’ll be able to live a comfortable retirement.
How much do you need saved for retirement?
While Lopez believes he can make it to retirement with $500,000, that may not be possible for most Americans, especially if you live in an expensive city like Los Angeles or New York. Fidelity’s guidelines say you should have saved 10 times your income by age 67. That means if you have $100,000 to earn before retirement, you’ll need to have at least $1 million saved by the time you retire.
Another common rule of thumb for figuring out how much to save is the rule of 25: First, determine how much you need each year for the lifestyle you want in retirement. Then multiply that number by 25. In other words, if you want to live on $50,000 a year in retirement, you’ll need to save at least $1.25 million to reach that goal.
Retiring as a millionaire on a middle-class income may sound like a pipe dream, but it’s entirely possible. The key is to invest and save early to let compound interest work its magic. Use our retirement savings calculator to figure out how much you need to save each month to retire with seven figures in your bank account.
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This article originally appeared on GOBankingRates.com: I’m the Average Middle-Class Retiree: How Much Do I Have in Savings?
