How to Retire With $1.2 Million on an Average American’s Salary

A salary of just $52,520 can get you to a financially secure future.

If you think you’ll never become a billionaire, you’re probably right. But if you think you’ll never become a millionaire, there’s a good chance that you’re wrong. It’s a very achievable goal for many of us — and even if you don’t quite achieve it, you may be able to come close.

Here’s a look at how you may be able to retire with $1.2 million — while earning a typical salary. Image source: Getty Images. Defining terms

Before jumping into exactly how to make $1 million on an average salary, let’s discuss terms a bit. If you look up typical incomes in America (and elsewhere), you’ll run across averages and medians. For those who don’t know the difference, consider this sequence of numbers: 10, 20, 30, 40, and 100. To average them, you add them all up, getting 200, and divide by five (the amount of numbers you added together), getting an average of 40. The numbers’ median, though, is the number in the middle of the sequence: 30.

An average salary may not be too close to what a typical person earns if there are some extreme outliers, such as a bunch of multimillionaires and billionaires. A median figure will ignore the magnitude of outliers and will simply reflect the middle number.

It’s also worth noting that while it can be interesting to see what an average income level is, it will be different for different kinds of workers. For example, the Bureau of Labor Statistics reported median weekly earnings for full-time workers of $1,010 in the fourth quarter of 2021. That’s $52,520 on an annual basis. But break it down by gender and women’s median earnings were $930 ($48,360 annually) — only 84.3% of the median for men of $1,103 ($57,356). Black workers, meanwhile, earned a median income of $805 ($41,860 annually), with Hispanics at $799 ($41,548) and Asians at $1,384 ($71,968).

These numbers are all for full-time workers. Many people work part-time and earn far less. A median salary of $52,520

We need a single number to work with here, so we’ll use that median salary of $1,010 per week, or $52,520 per year for full-time workers.

Everyone’s tax bite will be different, depending on their various circumstances. One estimate of the average effective federal tax rate in America was 8.2% for the years 2010 to 2018. As many people face state-level income taxes, too, let’s just use 10% for our total tax hit, lopping $5,252 off our $52,520 salary and leaving us with $47,268. That amounts to close to $4,000 per month coming in. Now, let’s see what you can do with that. Image source: Getty Images. Telling tables

A common rule of thumb in the past has been to save 10% of your income. Let’s see what it looks like if we sock away $400 per month, or $4,800 per year. We’ll assume an average annual growth rate of 8%, as that’s a bit more conservative than the overall average annual growth rate of the stock market of close to 10%, and we’ll include 10% and 12% growth rates, too: 10 years $75,098 $84,150 $94,342 15 years $140,757 $167,759 $200,416 20 years $237,230 $302,412 $387,354 25 years $378,982 $519,272 $716,803 30 years $587,260 $868,528 $1.3 million 35 years $893,290 $1.4 million $2.3 million 40 years $1.3 million $2.3 million $4.1 million The table above shows how you might achieve millionaire status by socking away and investing only 10% of your typical salary of $52,520 (less taxes). Of course, it might take more than 35 years to do so. If you’d like to get there faster, save and invest more.

For many of us, saving 10% of our income isn’t enough. The table below shows how much you might amass if you invest twice as much — fully 20% of your post-tax monthly income of $4,000. That would be around $800 per month, or $9,600 per year: 10 years $150,197 $168,299 $188,684 15 years $281,513 $335,517 $400,831 20 years $474,460 $604,824 $774,708 25 years $757,962 $1.0 million $1.4 million 30 years $1.2 million $1.7 million $2.6 million 35 years $1.8 million $2.9 million $4.6 million 40 years $2.7 million $4.7 million $8.2 million By saving and investing more, you’ll reach $1.2 million much sooner — in less than 30 years if your money grows at an average rate of 8%. If you’re 40 now, you could be a millionaire before you hit 70 — […]

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