Have you ever thought about how much you need to retire comfortably? Hi, Jeremy Riggs, Certified Financial Planner with Bay Smith Management. Today we’re breaking down the average retirement spending for middle-class Americans, the income they may need to support that, and how their savings compare. First, let’s define what middle-class means. The term middle-class can be tricky to pin down. According to the Pew Research Center, it includes households earning between two-thirds and double the median U.S. household income. With the current median sitting around $74,500, that puts the middle-class range between roughly $49,700 and $149,100. While this covers a very broad group, it helps frame our understanding of retirement expectations for this segment of the population. Let’s picture middle-class retirees like people embarking on a road trip. Some of them are in compact cars, others in SUVs, but are all aiming to reach the same destination, retirement.
Around 51% of Americans are on this journey as part of the middle class, while 19% are in the lower income bracket, driving with fewer resources, and 30% are in the upper income range, cruising comfortably with more savings. So how much will a typical middle class retiree need to spend during retirement? Since income varies, we’ll look at three examples, those earning on the low end, those around the median, and those at the higher end. For low income retirees, net income could be around $41,500 per year, and for those at the higher end, it could reach $97,500. In retirement, you may not spend the same as when you’re working. Some expenses shrink, like commuting or professional costs, while others, like travel and hobbies, may increase. A common guideline suggests that retirees spend about 80% of their pre-retirement income. This is called the income replacement ratio. Using that estimate, retirees may be able to save up to $10,000 a year, which is a lot.
Retirees at the low end might spend about $32,200 a year. Median earners could spend around $46,500 and high income earners may expect roughly $78,800 annually. These numbers are just starting points. Everyone’s retirement looks a little different. Now, how much should be saved to cover these expenses? Let’s assume a retirement age of 65 when Medicare kicks in and factor in Social Security benefits. For a married couple, retirees on the lower end may need about $175,000 saved. For those in the middle, that might rise to $354,000 and higher income retirees could need close to $918,000. Single retirees without spousal Social Security will need more, around $347,000 to $1.17 million depending on their income level. So how does this compare to what Americans have saved? The Federal Reserve reports that the average savings
55 to 64 is around 538,000, but the median is only 185,000, much lower than what many will need. In fact, nearly half Americans in this age group have no retirement savings at all. This highlights the gap many middle class households face in preparing for retirement. If you feel like you’re behind on savings, there are steps you can take. You can cut expenses, try boosting your savings. Those can help, though it’s often easier said than done. For more tips on improving your retirement strategy, check out this next video.
