Please ensure Javascript is enabled for purposes of website accessibility

Can You Retire a Millionaire on a $60,000 Salary?

By Maurie Backman – Sep 18, 2021 at 7:02AM

Key Points

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Many people aim to retire wealthy. But is that possible when your earnings are only average?

Not everyone feels the need to retire a millionaire. But let's face it -- it's a good goal to have. And while it may seem like the sort of goal you can only achieve if you earn a high salary, the reality is that even average earners can close out their careers with $1 million or more to their name.

It's all about having the right strategy

If your goal is to retire a millionaire, you'll need to do a few key things:

So let's break down each point. First, getting started early really just means setting funds aside for retirement as soon as you begin to earn a steady paycheck. That may happen age of 20, 25, or 30. But if you wait too long to start saving for retirement, you'll lose out on years of investment growth.

Smiling person leaning back in chair holding phone in hand and laptop on knees

Image source: Getty Images.

Next, it'll help to house your savings in an IRA or 401(k) plan, as opposed to a traditional brokerage account. With a brokerage account, you'll get easy access to your money when you want it, whereas IRAs and 401(k)s penalize you for taking withdrawals before age 59 1/2.

But the benefit of saving in an IRA or 401(k) is getting to enjoy some tax breaks. With a traditional IRA or 401(k), the money you contribute goes in pre-tax, and investment gains in your account are tax-deferred, which means you don't pay taxes year to year, but rather when you take withdrawals.

Meanwhile, Roth IRAs and 401(k)s don't give you a tax break on your contributions. But your investments get to grow completely tax-free. And withdrawals are tax-free as well.

Finally, you'll need to invest your money in the right places. For the most part, that means individual stocks if your plan allows for it (401(k) plans generally don't) and/or index funds. If you play it too safe with your investments by sticking mostly to bonds, you may not get growth you're hoping for.

How much wealth can you build on a $60,000 income?

Becoming a millionaire on a $60,000 salary will require some sacrifice. But is it doable? Absolutely.

As a general rule, it's a good idea to aim to set aside 15% to 20% of your income for retirement. So let's say you're able to part with 20% of your earnings, or $12,000 a year.

Let's also assume you follow this advice and you give yourself a 40-year savings window, you save in an IRA or 401(k), and you invest heavily in stocks so that your retirement plan delivers an average annual 7% return, which is a few percentage points below the stock market's average.

Do all that, and you'll end up with about $2.4 million.

Now, what if you can't manage to part with $12,000 a year out of $60,000? Even if you're able to save only half that amount, all other things being equal, you'll wind up with $1.2 million. That's certainly a respectable sum.

Of course, if you're socking away 20% of your $60,000 salary, it means you probably aren't taking fancy vacations every year and you're probably maintaining a pretty frugal lifestyle. But if you're willing to make some reasonable sacrifices, you could end up buying yourself the retirement of your dreams.

The Motley Fool has a disclosure policy.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.