How To Retire With $ 1.2 Million On A $ 58,000 Salary | Personal finance

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The median annual salary in the United States, according to the Bureau of Labor Statistics, is $ 58,260. While that number has been growing steadily over the past few years, depending on where you live in the country, that number might seem pretty low.

So, can you really retire comfortably if you are an average worker? The answer is a resounding yes. That’s how:

Calculate how much you will need

Retirement experts recommend that you plan to spend around 80% of your current salary when you retire. If you’re an average worker, that’s $ 46,608 in annual retirement income.

To calculate the total savings you’ll need to achieve this goal, you can use the handy 4% rule, where you divide your retirement income by 4%: $ 46,608 รท 0.04 = $ 1,165,200.

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In theory, with an average salary of $ 58,260 over the course of your career, you’ll need about $ 1.2 million in savings to retire comfortably. If you save 15% of your salary each year (the minimum recommended by financial advisors) and work for 45 years, you will have saved a whopping $ 393,255. Unfortunately, that’s nowhere near the $ 1.2 million needed to retire. But don’t worry – there is a simple solution.

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Don’t leave your money in the bank

With savings account interest rates practically zero, the key to getting the $ 1.2 million in pension savings calculated above is to avoid leaving your savings in the bank where your money isn’t growing.

Instead, you should put your capital to work in the stock market, where the S&P 500 has produced an average return of around 10% over the past 70 years or more (with dividends reinvested).

While there are any number of retirement planning strategies you could implement, let’s assume for the sake of argument that you simply invested 15% of your salary in a low-cost S&P 500 index fund, such as the Vanguard 500 Index Fund ETFover the course of your 45-year career.

You would only need a modest 4.5% rate of return to turn that $ 393,255 of savings into $ 1.2 million. Considering that the market has produced significantly higher returns, you are likely to have a lot more.

Rate of return

Savings on the resulting pension

5%

$ 1,395,140

6%

$ 1,858,527

7%

$ 2,496,305

8%

$ 3,376,513

9%

$ 4,593,901

10%

$ 6,280,352

Calculations by author via Investor.gov.

The table above shows the power of investing. The stock market offers even modest earnings the chance to retire as a multimillionaire.

Other ways to increase your retirement savings

Now that you understand that investing is the key to a successful and comfortable retirement, consider a couple of additional strategies you can implement to improve your retirement prospects.

Avoid lifestyle inflation

Lifestyle inflation occurs when you increase spending in tandem with wage increases. While it’s okay to spend a little more when you start earning more, ideally you want to increase your savings as your wages rise.

The easiest way to do this is to simply continue living the same lifestyle even when you earn more. This will save you a lot more than 15% and dramatically increase your chances of hitting your retirement goals.

Invest in yourself

In Berkshire HathawayDuring the 2022 Annual Shareholders’ Meeting, President and CEO Warren Buffet gave some rather unique investment advice: “The best investment by far is anything that develops itself.”

Learning new skills, whether by going back to school or just learning for free on the internet or in books, will ultimately make you more marketable for organizations and, in turn, increase your earning potential.

In 2022, there is very little you cannot learn as long as you have the motivation and an internet connection. If you are worried about your retirement, consider adding new skills to your professional repertoire so you can increase your income.

Finding even small ways to spend less and earn more can go a long way towards your overall retirement savings. When you combine it with the incredible wealth-creating opportunities of the stock market, even with an average salary, your chances of a successful retirement are within reach.

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Mark Blank has no position in any of the titles mentioned. The Motley Fool has positions and recommends Berkshire Hathaway (B shares) and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2023 $ 200 call on Berkshire Hathaway (B shares), short January 2023 $ 200 put on Berkshire Hathaway (B shares) and short January 2023 $ 265 call on Berkshire Hathaway (B shares) . The Motley Fool has a disclosure policy.

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