While your pre-retirement income alone isn’t enough to determine whether you’ll retire comfortably, it certainly plays a role. For example, if you earn a middle-class salary, the amount you’ll allocate to your nest egg will be much lower than someone who earns millions per year.
Discover: I retired at 50: this is my monthly budget
Try This: 7 Reasons You Should Consider a Financial Advisor, Even If You're Not Rich
By 2024, a middle-class income is expected to be between $50,000 and $150,000. If you fall into this category, you may be wondering how your savings compare to the rest of the group. That’s why we interviewed a 62-year-old retiree who considers himself middle-class to see how much he’s saved for his golden years. Because he prefers to remain anonymous, we’ll call him Lopez.
This is what his savings look like as a retiree:
Total savings as an average middle class retiree
“Before I retired, I was making an average middle-class income of about $72,000 a year. It certainly wasn’t an insanely high salary, but it was enough to cover my expenses and put a little aside for monthly savings,” Lopez said.
He said he earned most of his income from his full-time job as a sales representative and some side jobs, such as selling second-hand items on eBay.
Savings, investment choices and asset allocation
Lopez's savings are a mix of different accounts.
“I've built up an emergency fund over the years, which currently stands at about $9,500, and I have the majority of that in my Ally High-Yield Savings Account,” he said.
Lopez not only made sure to save enough money for the bad times, but he also contributed diligently to his 401(k) retirement fund throughout his working life, which has since grown to about $250,000.
“A 401(k) isn't my only retirement account, though. I also have a few in Roth IRAs, totaling about $100,000,” he added.
In addition to these retirement accounts, Lopez has about $110,000 invested in taxable investment accounts, with Vanguard ETFs making up the majority of his investments.
“All in all, my retirement savings, including these accounts and a few other smaller accounts, is about half a million, which I'm very happy with, considering I live a frugal life and don't spend that much money each month,” he said.
Strategies for Building a Savings Pot
“Building up a half million nest egg wasn’t easy, but it was definitely worth it,” Lopez said.
One of the strategies he used to stay consistent in saving and investing was to leverage his employer's 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. This way, I’m not tempted to overspend every time I get my paycheck, because most of it has already been allocated to my retirement savings, or will be allocated.”
“I also tried to live below my means, which honestly wasn't that difficult for me, because I'm a frugal person by nature and don't attach much value to material things,” Lopez said.
He believes his frugality is one of the main reasons he was able to save aggressively for retirement on a middle-class income.
Trending Now: 5 Places to Retire in America That Are As Cheap as Mexico, Portugal, and Costa Rica
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:
-
Started saving earlier: “I didn't start saving aggressively until I was in my mid-30s. I think if I had started earlier, I could have taken advantage of compound interest and built an even bigger nest egg,” he said.
-
Worked with a financial advisor: Another thing Lopez regrets now that he's in his golden years is not being more proactive about seeking professional financial advice in his 20s and 30s. “While I've done my best to educate myself on personal finance, I think working with a financial advisor sooner would have helped me optimize my savings and investing strategies,” he shared.
-
Ensure you have sufficient passive income streams: Lopez also regrets not putting enough time and effort into cultivating passive income streams that could help him make money on autopilot during his retirement. While he can still build a business that generates passive income, it takes time to see results.
Overall, Lopez is still grateful for his accumulated savings and is confident that he will be able to live comfortably after retirement with half a million dollars in the bank.
How much savings should you have when you retire?
While Lopez figures he can make $500,000 in his 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’s guidelines, you should save 10 times your income by age 67. So, assuming you earn $100,000 before retirement, you’ll need to have at least $1 million saved by the time you retire.
Another popular rule of thumb for determining how big your nest egg should be is the rule of 25. First, determine how much you need each year to live your desired retirement lifestyle. Then, multiply that number by 25. So, to live on $50,000 a year in retirement, you’ll need to have saved at least $1.25 million to reach that goal.
While retiring as a millionaire with a middle-class income may seem like a pipe dream, it is certainly achievable. The key is to invest early and save to let compound interest do its work. Use a retirement savings calculator to figure out how much you need to put aside each month to retire with seven figures in the bank.
More from GOBankingRates
This article originally appeared on GOBankingRates.com: I'm an Average Middle-Class Retiree: Here's How Much Savings I Have
