Although your pre-retirement income alone isn’t enough to determine whether you’ll have a comfortable retirement, it certainly plays a role. For example, if you earn a middle-class salary, the amount you’ll set aside for your nest egg will be much less than someone who makes millions a year.
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In 2024, middle-class income would be between $50,000 and $150,000. If you’re in this category, you might be wondering how your savings compare to the rest. So we interviewed a 62-year-old retiree who considers himself middle-class to find out how much he has saved for his retirement. Since he prefers to remain anonymous, we’ll call him Lopez.
This is what his savings look like as a pensioner:
Total savings of an average middle-class pensioner
“Before I retired, I was earning an average middle-class income of around $72,000 a year. It wasn’t a huge salary, but it was enough to cover my expenses and put a little aside for monthly savings,” Lopez said.
He shared that his income came primarily from his full-time job as a sales representative and some side hustles such as selling used items on eBay.
Saving, investment decisions and asset allocation
Lopez’s savings are a mix of different accounts.
“I’ve saved up an emergency fund over the years that currently stands at about $9,500, and I have most of it stashed in my Ally High Yield Savings Account,” he said.
In addition to making sure he had enough money saved for a rainy day, Lopez also diligently contributed to his 401(k) plan throughout his working years, which has now grown to around $250,000.
“A 401(k) is not my only retirement account, though. I also have some in Roth IRAs, about $100,000 total,” 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.
“In total, my retirement savings, including these accounts and some other smaller ones, is around half a million, which I’m pretty happy about since I have a frugal lifestyle and don’t spend that much per month,” he said.
Strategies for building an emergency fund
“It wasn’t easy to save up a half-million nest egg, but it was definitely worth it,” Lopez said.
One of the strategies that helped him stay consistent with saving and investing was to take advantage of the employer match.
“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, since most of it has already been – or will be – used for my retirement savings.”
“I also tried to live within my means, which honestly wasn’t that difficult because I’m a frugal person by nature and material things don’t mean much to me,” Lopez said.
He believes that his frugality is one of the main reasons he has been able to save massively for retirement despite having a middle-class income.
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Lessons from previous 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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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 benefited from compound interest and built up an even bigger nest egg,” he said.
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Working with a financial advisor: Another thing Lopez regrets now that he’s in his golden years is that he wasn’t more proactive in seeking professional financial advice in his twenties and thirties. “Although I did my best to educate myself on personal finance, I think working with a financial advisor earlier could have helped me optimize my savings and investment strategies,” he shares.
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Established sufficient passive income streams: Lopez also regrets not putting enough time and energy into developing passive income streams that could help him make money automatically in retirement. While he can still build a business that generates passive income, the results take time.
Overall, however, Lopez said he is grateful for the savings he has been able to accumulate, and he is confident that with half a million dollars in the bank he will be able to enjoy a comfortable retirement.
How much savings should you have when you retire?
While Lopez believes he can save $500,000 by the end of his life, that may not be possible for most Americans – especially if they live in a more expensive city like Los Angeles or New York. Fidelity’s guidelines say you should save 10 times your income by age 67. So if you make $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, decide how much you need each year for 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 at least $1.25 million saved to reach that goal.
Retiring as a millionaire on a middle-class income may sound like a pipe dream, but it’s entirely doable. The key is to start investing and saving early so compound interest can work its magic. Use a retirement savings calculator to figure out how much you’ll need to put away each month to retire with seven figures in the bank.
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This article originally appeared on GOBankingRates.com: I’m an average middle-class retiree: This is how much savings I have
