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 can allocate to your nest egg will be much less than someone earning millions per year.
Discover: 6 money moves to make when your 401(k) reaches $1 million
Read next: A smart way to increase your retirement savings in 2024
In 2024, middle class income would be between $50,000 and $150,000. If you’re in this bracket, you might be curious about 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 saved for his golden years. Since he prefers to remain anonymous, we’ll call him Lopez. This is what your savings look like as a retiree.
Total savings as an average middle-class retiree
“Before I retired, I earned an average middle-class income of about $72,000 a year. It wasn’t an incredibly 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 said his income came primarily from a combination of his full-time job as a sales representative and some side hustles like selling second-hand items on eBay.
Learn more: How much monthly income could you get with a $200,000 annuity?
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 most of it is stashed away in my Ally high-yield savings account,” he said .
In addition to making sure he has enough funds set aside for a rainy day, Lopez has also diligently contributed to his 401(k) throughout his working years, and it’s now growing at around $250,000.
“However, a 401(k) is not my only retirement account. I also have some in Roth IRAs, totaling about $100,000,” he added.
Along with these retirement accounts, Lopez also invested about $110,000 in taxable investment accounts, with Vanguard ETFs making up most of his investments.
“Overall, my retirement savings, including these accounts and a few other smaller ones, are around half a million, which I’m pretty happy about since I live a frugal lifestyle and don’t spend as 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 taking advantage of his employer’s 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. This way, I’m not tempted to overspend every time I get my paycheck, because 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 almost don’t care about materialistic things,” she said. Lopez said.
He believes his frugality is one of the main reasons he was able to save aggressively for retirement with a middle-class income.
Lessons learned from past financial decisions
Looking back, Lopez wishes she had done some things differently to better prepare for retirement. Here are a few:
I started saving earlier: “I didn’t really start saving aggressively until my mid-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.
Working with a financial advisor: Another thing Lopez regrets now that he’s in his golden years is not being more proactive in seeking professional financial advice in his 20s and 30s. “Although 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. he shares.
Builds Enough Passive Income Streams: Lopez also regrets not spending enough time and energy creating passive income streams that could help her earn money on autopilot in retirement. While he can still start a passive income-generating business right now, it will take some time before he sees results.
Overall, however, Lopez said he is still grateful for the savings he has been able to accumulate and is confident he will be able to enjoy a comfortable lifestyle in retirement with half a million dollars in the bank.
How much savings should you have in retirement?
Although Lopez believes she can earn $500,000 throughout 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 aim to save 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 will need each year for your preferred lifestyle in retirement. 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 in savings to reach that goal.
While retiring as a millionaire with a middle-class income may seem like a pipe dream, it’s definitely doable. The key is to start investing and saving early to let compound interest work its magic. Use a retirement savings calculator to determine how much you need to put aside each month to retire with seven figures in the bank.
More from GOBankingRates
This article was originally published on GOBankingRates.com: I’m an Average Middle-Class Retiree: Here’s How Much I Save
yahoo
