How to Retire With $1.2 Million on a $58,000 Salary

The average annual salary in the U.S., according to the Bureau of Labor Statistics, is $58,260. While that number has been steadily climbing over recent years, depending on where you live in the country, that number might seem pretty low.

So, can you really retire comfortably if you’re an average earner? The answer is a resounding yes. Here’s how:

Calculate how much you’ll need

Retirement experts advise you should plan to spend about 80% of your current salary when you retire. If you’re an average earner, that comes out to $46,608 of annual retirement income.

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

In theory, with an average salary of $58,260 over the course of your career, you’ll need roughly $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 have saved up an impressive $393,255. Unfortunately, that is nowhere near the $1.2 million needed to retire. But don’t worry — there’s a simple solution.

Image source: Getty Images.

Don’t leave your money in the bank

With savings account interest rates at virtually zero, the key to achieving the $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 be putting your capital to work in the stock market, where the S&P 500 has delivered an average return of roughly 10% over the last 70 years or more (with dividends reinvested).

While there are any number of retirement planning strategies you could deploy, 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 ETF, over the course of your 45-year career.

You would only need a modest 4.5% rate of return to turn the $393,255 in savings into $1.2 million. Considering the market has delivered significantly higher returns, its likely you’d have much more than that.

Rate of Return

Resulting Retirement Savings













Calculations by author via

The table above demonstrates the power of investing. The stock market gives even modest earners the ability to retire as multimillionaires.

Additional ways to boost your retirement savings

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

Avoid lifestyle inflation

Lifestyle inflation is when you increase your spending in tandem with wage increases. While it’s OK to spend a little more as you start making more, ideally you want to increase your savings as your wages go up.

The easiest way to do this is by simply continuing to live the same lifestyle even when earning more. This will allow you to save much more than 15% and will drastically increase your odds of meeting your retirement goals.

Invest in yourself

At Berkshire Hathaway‘s 2022 annual shareholder meeting, Chairman and CEO Warren Buffet imparted some rather unique investing 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 on the internet or in books, will ultimately make you more marketable to organizations, and in turn will boost 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’re concerned 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 in your overall retirement savings. When you couple that with the incredible wealth creation opportunities of the stock market, even on an average salary, your chances of a successful retirement are well within reach.

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

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