How to Retire with $1.2 Million on a $58,000 Salary | Smart Change: Personal Finance

(Mark Blank)

The average annual salary in the United States, according to the Bureau of Labor Statistics, is $58,260. While this number has been steadily increasing over recent years, depending on where in the country you live, this number may seem very low.

So, can you really retire comfortably if you’re a middle-income earner? The answer is yes. Here’s how:

Calculate how much you will need

Retirement experts advise that you plan to spend about 80% of your current salary when you retire. If you’re a middle-income earner, that comes to $46,608 in annual retirement income.

To calculate the total savings that you will need to achieve this, you can use useful 4% basewhere you divide your retirement income by 4%: $46,608 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 would need approximately $1.2 million in savings to comfortably retire. If you are saving 15% Of your salary each year (the minimum recommended by financial advisors) and you work for 45 years, you’ll save $393,255. Unfortunately, that’s nowhere near the $1.2 million required for retirement. 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 at nearly zero, the key to achieving $1.2 million in retirement savings as 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 Standard & Poor’s 500 It has averaged around 10% return over the past 70 years or more (with profits reinvested).

While there are any number of retirement planning strategies You post, 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 Vanguard 500 Index Fund ETFover the course of 45 years of your career.

You’d only need a modest 4.5% rate of return to turn $393,255 of savings into $1.2 million. Given that the market has generated much higher returns, you are likely to have a lot more.

Rate of Return

Retirement savings













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The above table shows the strength of the investment. The stock market gives even those with modest incomes the ability to retire as millions.

Additional ways to increase retirement savings

Now that you understand that investing is the key to a successful and comfortable retirement, consider two additional strategies you can deploy to improve your retirement outlook.

Avoid lifestyle hypertrophy

lifestyle hypertrophy When you increase your spending in parallel with the increase in wages. While it’s okay to spend a little more when you start making more, it’s best to increase your savings as your salary rises.

The easiest way to do this is to simply continue living the same lifestyle even as you earn more. This will allow you to save more than 15% and will significantly increase the odds of achieving your retirement goals.

invest in yourself

in Berkshire HathawayAt the 2022 Annual Shareholder Meeting, Chairman and CEO Warren Buffett presented some of that Unique investment advice: “The best investment by far is anything that develops yourself.”

Learning new skills, whether by going back to school or simply learning for free online or in books, will ultimately make you more marketable to organizations, and thus enhance your earning potential.

In 2022, there’s very little you can’t learn as long as you’re motivated and connected to the internet. If you are concerned about retirement, consider adding new skills to your professional repertoire so you can increase your income.

Finding small ways to spend less and earn more can go a long way in your overall retirement savings. When you combine that with the amazing wealth creation opportunities in the stock market, even on an average salary, your chances of a successful retirement are close at hand.

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Mark Blanc He has no position in any of the mentioned shares. Motley Fool has and recommends positions in the Berkshire Hathaway (B stock) and Vanguard S&P 500 ETF. Motley Fool recommends the following options: long January 2023 calls of $200 on Berkshire Hathaway (B shares), short January 2023 calls of $200 on Berkshire Hathaway (B shares), and short January 2023 calls of $265 on Berkshire Hathaway (B shares) ). Motley Fool has a profile Disclosure Policy.

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