How Much Does a Middle-Class American Need to Save for Retirement?


Let me tell you a story about two middle-class Americans planning for retirement. Let’s call them Median Mark and Upper-Middle Matt. Each is 55 years old and wants to retire in ten years.

What’s the biggest difference between them? Median Mark earns the median income for his age group: $74,270 a year. Upper-Middle Matt, however, earns twice as much.

Does that mean that Upper-Middle Matt will be able to retire first?

Stick around to find out; the answer will surprise you.

A 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. While it was one of my more popular videos, many people let me know that $10,000 per month was way too much. Instead, I needed to focus on what the average American would spend in retirement.

After I created that blog post and corresponding video, many people commented that this kind of retirement spending wasn’t nearly high enough. 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.

So, what kind of retirement spending would accurately reflect the average, middle-class American? Again, I dug into the numbers. I found plenty of interesting data, including one item that should concern us all. But there’s also good news. Be sure to watch until the very end where I discuss the implications of what I found.

What is “Middle-Class”?

According to the Pew Research Center, middle-class households earn between two-thirds and two times the U.S median household income. According to the 2020 U.S. Census data, the median household income for those between ages 55 and 64 is $74,270 per year. That gives us a middle-class income range between approximately $49,500 and $148,500 if we’re focusing strictly on this age group.

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.


For simplicity and consistency, we’ll use the same assumptions we’ve made in prior blog posts in all our calculations. Inflation will be 3% and our expected portfolio returns are 7%.

For Social Security, we’ll simply input Mark’s and Matt’s income into the online quick calculator to arrive at a monthly benefit. We’ll also assume they have stay-at-home spouses that will be eligible for spousal benefits.

As for retirement portfolio income, we’ll again use the 4% Rule.

Living Expenses

A tricky thing about using Census numbers is that they list income, not spending. Some of what Mark and Matt earn will be reduced by their savings and taxes, so we’ll need to adjust.

For 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. After we calculate and pay taxes, we’ll assume they spend what’s left.

That leaves $4,834 per month in spending for Median Mark and $9,103 in monthly expenses for Upper-Middle Matt. Interestingly, Upper-Middle Matt is creeping awfully close to the $10,000 per month mark.

Retirement Savings

To determine what Mark and Matt will need to save each month for retirement, we’ll need to understand where they’re starting. Again, we look to the U.S. Census Bureau data to estimate how much they’ve saved to this point.

According 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:

How Much Does a Middle-Class American Need to Save for Retirement? Assumptions

So, we’ll assume that’s what Median Mark has saved. For Upper-Middle Matt, we’ll assume he’s saved twice that amount.

Total Savings Needed for Retirement

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.

Thankfully, Social Security benefits do increase annually with a cost-of-living adjustment. For simplicity, we will assume that Social Security payments increase at the rate of inflation as well.

That still leaves a shortfall of $2,588 per month that Mark’s investments will need to provide him. Using the 4% Rule, we find that Mark will need around $776,000 for retirement in ten years.

For Upper-Middle Matt, the math is similar. His $9,103 per month in spending jumps to $12,234 in ten years thanks to inflation. His Social Security benefits increase with inflation as well. At retirement, Matt’s investments will need to provide $6,700 per month.

Using the 4% Rule, we find that Upper-Middle Matt will need a retirement portfolio of approximately $2 million in ten years.

How Much Does a Middle-Class American Need to Save for Retirement? Investments Needed

If you want to run these calculations for your personal situation, I’ve created a downloadable spreadsheet you can use to run these numbers yourself. It even works if you have a pension or other retirement income other than Social Security. If that’s something that interests you, I recommend you check it out.

How Much Do They Need to Save?

Now that we know how much they need, how can Mark and Matt get there? Who will get there first? Based upon the Census data, Median Mark has $143,400 saved right now. Assuming he earns an average of 7% on his investments, Mark will need to start saving a whopping $2,856 per month to meet his retirement spending goal.

Think about that. Mark will need to save almost $35,000 per year – that’s close to half of his take-home pay.

Unfortunately, things aren’t much rosier for Upper-Middle Matt, despite earning twice as much and saving twice as much as Median Mark. Upper-Middle Matt will need to save $8,356 per month to meet his retirement spending goals!

That’s over $100,000 per year – around three-quarters of his take-home pay!

How Much Does a Middle-Class American Need to Save for Retirement? Savings Needed

As we can clearly see, both future retirees are so far behind in their retirement savings that it would be nearly impossible to catch up.

If you thought that either one of them was going to be able to retire at 65, you were wrong! I told you that the answer might surprise you!

Retirement Savings Is a Concern

Digging into the Census data as well as the BLS data that I’ve used in prior blog posts, it’s easy to see that people are doing their best to save. They do tend to be cash-flow positive. This is why I’ve assumed each saves 15% of their gross incomes in these calculations.

However, the amount they’re saving isn’t enough to support the same levels of spending that they enjoy before retiring.

If Upper-Middle Matt chooses to live the same lifestyle as Median Mark, he will eventually have plenty of money to fund his retirement. Of course, the flip side for him is being forced into a more austere budget during retirement simply because the resources aren’t there to support anything more.

Unfortunately, there seems to exist a personal finance corollary to Parkinson’s Law:  your spending will expand to consume the income available for it.

This realization is the appeal of the FIRE movement. If you can be content with less, then you can experience financial independence sooner. Indeed, contentment is a choice. To grasp freedom, you must first be willing to let go of material desires.

In the comments sections of several of my YouTube videos, many viewers expressed the joy, happiness, and freedom that came from retiring sooner, and with less.

What About the 80% Replacement Rule?

Now for the good news. After looking at plenty of data in researching these topics, there’s strong evidence that the 80% replacement rule is a real thing. So, how would this impact Median Mark and Upper-Middle Matt? Let’ take a look.

If their retirement expenses were 80% of their pre-retirement expenses, Median Mark would now need to have around $386,000 saved at retirement. For Upper-Middle Matt, his portfolio need would drop to $1.28 million.

From there, Median Mark would need to save $604 per month until retirement, well below his current savings rate.

For Upper-Middle Matt, it’s not as easy. He’ll need to save $4,115 per month to retire spending 80% of what he does now. To make things work, he’ll need to start reducing his living expenses now and start saving more, but it could be done.

In going through these scenarios and reviewing the data, I wonder if these low average American retirement spending levels are constrained by a lack of retirement savings. The Census data clearly shows us that the median American has not saved nearly enough to support their current living expenses in retirement.

If you want to take a detailed look at what retirement looks like for an average American household, I recommend you review this blog post to see how it compares with Median Mark and Upper-Middle Matt.

Of course, no one is average and no two retirees are the same. If you need help figuring out how much you’ll need to save for retirement, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.

As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your individual situation.
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