Although your pre-retirement income alone is not enough to determine whether you retire comfortably certainly plays a role. For example, if you earn a middle-class salary, the amount you allocate to your nest egg is much less than someone who earns millions a year.
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By 2024, middle class income would be in the range of $50,000 to $150,000. If you’re in this range, you might be wondering how your savings compare to the rest of the pack. So we interviewed a 62-year-old retiree who considers himself middle class to see how much he has saved for his golden years. As he prefers to remain anonymous, we will refer to him as Lopez.
See what your savings look like when retired:
Total savings of an average middle-class retiree
“Before retiring, I earned an average middle-class income of about $72,000 a year. It wasn’t an insanely high salary, but it was enough to cover my expenses and set aside a little for monthly savings,” Lopez said.
He shared that his income mainly came from 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 is currently around $9,500, and I have most of it saved in my Ally high-yield savings account,” he said.
In addition to making sure he has enough set aside for rainy days, Lopez has also diligently contributed to his 401(k) throughout his working years, and it has now grown to about $250,000.
“However, a 401(k) is not my only retirement account. I also have some in Roth IRAs totaling about $100,000,” she added.
Along with these retirement accounts, Lopez has about $110,000 invested in taxable investment accounts, with Vanguard ETFs representing the bulk of his investments.
“Overall, my retirement savings, including these accounts and a few smaller ones, amount to about half a million, which I’m very happy with since I live a frugal lifestyle and don’t spend that much every month,” he said .
Strategies for building a nest egg
“Building a half-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 to take advantage of his employer matching contributions.
“Additionally, I 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 more 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 barely care about materialistic things,” Lopez said.
He believes his frugality is one of the main reasons he was able to aggressively save for retirement with 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:
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I started saving early: “I only started saving aggressively in my early 30s. I think if I had started even earlier, I could have taken advantage of compound interest and built an even bigger nest egg,” he said.
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Worked with a financial advisor: Another thing Lopez regrets now that she’s in her golden years is not being more proactive in seeking professional financial advice in her 20s and 30s. “Although I’ve done my best to educate myself about personal finances, I think working with a financial advisor earlier could have helped me optimize my savings and investing strategies,” he shared.
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Built enough passive income streams: Lopez also regrets not investing enough time and energy into cultivating passive income streams that could help him earn money on autopilot in retirement. While he can still build a business that generates passive income, results take time.
Overall, though, Lopez said he’s still grateful for his accumulated savings and feels confident he’ll enjoy a comfortable lifestyle in retirement with half a million dollars in the bank.
How much should you save in retirement?
While Lopez believes she can make $500,000 during her golden years, 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 have saved 10 times your income by age 67. So, assuming you earn $100,000 before retirement, you’ll need at least $1 million saved by the time you retire.
Another popular rule of thumb for determining the size of your nest egg 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, to live on $50,000 a year in retirement, you’ll need at least $1.25 million saved to reach that goal.
While retiring as a millionaire with a middle-class income may seem like a pipe dream, it is very doable. The key is to invest and save early to let compound interest work its magic. Use a retirement savings calculator to find out how much you need to save each month to retire with seven figures in the bank.
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This article originally appeared on GOBankingRates. with: I’m an Average Middle-Class Retiree: See How Much I Save
