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Thankfully, Social Security benefits do increase annually with a cost-of-living adjustment. If Mark and Matt plan to retire in ten years, how much will they need to have saved between now and then? For our Median Mark, his monthly living expenses jump to $6,496 per month at retirement, thanks to inflation. For Upper-Middle Matt, we’ll assume he’s saved twice that amount. So, we’ll assume that’s what Median Mark has saved. Census Bureau data to estimate how much they’ve saved to this point.Īccording to the data, the median savings for someone in the 55 to 64 age group looks something like the investment assets shown in the following table: To determine what Mark and Matt will need to save each month for retirement, we’ll need to understand where they’re starting. Interestingly, Upper-Middle Matt is creeping awfully close to the $10,000 per month mark. That leaves $4,834 per month in spending for Median Mark and $9,103 in monthly expenses for Upper-Middle Matt. After we calculate and pay taxes, we’ll assume they spend what’s left.
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Some of what Mark and Matt earn will be reduced by their savings and taxes, so we’ll need to adjust.įor each of our middle-class retirees, we will assume they save 5% of their gross income into a tax-deferred retirement account and 10% into an after-tax savings account. Living ExpensesĪ tricky thing about using Census numbers is that they list income, not spending. We’ll also assume they have stay-at-home spouses that will be eligible for spousal benefits.Īs for retirement portfolio income, we’ll again use the 4% Rule. Inflation will be 3% and our expected portfolio returns are 7%.įor Social Security, we’ll simply input Mark’s and Matt’s income into the online quick calculator to arrive at a monthly benefit. Assumptionsįor simplicity and consistency, we’ll use the same assumptions we’ve made in prior blog posts in all our calculations.
![recommended category percentage of household retirement budget recommended category percentage of household retirement budget](https://i.pinimg.com/originals/47/6b/67/476b67cab77ce5785defa04ada395356.jpg)
![recommended category percentage of household retirement budget recommended category percentage of household retirement budget](https://g.foolcdn.com/editorial/images/180130/screen-shot-2015-09-24-at-80140-am_large.png)
Since the lower end of this range was covered in a prior blog post, let’s focus on two retirees today: Median Mark, who earns the median income of $74,270 per year, and Upper-Middle Matt, who earns twice that amount and represents the top-end of the middle-class. That gives us a middle-class income range between approximately $49,500 and $148,500 if we’re focusing strictly on this age group. Census data, the median household income for those between ages 55 and 64 is $74,270 per year. What is “Middle-Class”?Īccording to the Pew Research Center, middle-class households earn between two-thirds and two times the U.S median household income. Be sure to watch until the very end where I discuss the implications of what I found. I found plenty of interesting data, including one item that should concern us all. So, what kind of retirement spending would accurately reflect the average, middle-class American? Again, I dug into the numbers. Indeed, based upon data in the study I used, I believe that the average American’s retirement spending may be more austere than many would prefer. Instead, I needed to focus on what the average American would spend in retirement.Īfter I created that blog post and corresponding video, many people commented that this kind of retirement spending wasn’t nearly high enough. While it was one of my more popular videos, many people let me know that $10,000 per month was way too much. Stick around to find out the answer will surprise you.Ī few months ago, I created a blog post and corresponding video that detailed how much you’d need to save to support $10,000 per month in retirement living expenses. Upper-Middle Matt, however, earns twice as much.ĭoes that mean that Upper-Middle Matt will be able to retire first? What’s the biggest difference between them? Median Mark earns the median income for his age group: $74,270 a year. Each is 55 years old and wants to retire in ten years. Let’s call them Median Mark and Upper-Middle Matt. Let me tell you a story about two middle-class Americans planning for retirement.