Home / Retirement / Can you retire a millionaire on a $60,000 salary?
You can retire a millionaire even if you earn below the media wage. Here's how.
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Sebastian Bowen
Sebastian Bowen has been a Motley Fool contributor since late 2018. Sebastian found his passion for writing and educating others about shares and all things finance after completing his studies in political, economic and social science and enjoys bringing this passion to life at the Fool. His investment philosophy is a simple one – buying high-quality companies at prices that make sense. When he’s not researching his next investment at all hours of the morning, Sebastian enjoys classic movies and likes to unwind with a good book, newspaper or record.
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According to the Australian Bureau of Statistics (ABS), the median wage for an average Australian worker in 2022 was $1,250 per week or $65,000 per year. So if you earn a $60,000 salary, you are below the national income median in the country. But you are masking a mistake if you think that this salary prevents you from a shot at joining the club of those that will retire a millionaire.
Sure, living comfortably (let alone retiring) on a $65,000 salary is a hard ask in 2023, with all of the rises in the cost of living. That's especially so for those Australians raising a family.
But with some discipline, and a lot of patience, it is certainly possible. All you have to do is invest consistently in ASX shares and harness the power of compound interest to your advantage.
Let's start at the start. Investing in ASX shares is one of the best and most proven ways of building wealth. As we discussed earlier this month, an investment in ASX shares thirty years ago would have resulted in investors enjoying an average 9.1% return per annum.
That's enough to turn $10,000 then into $138,000 today. That's a return that beats out almost every other asset class there is, including property, bonds and cash.
You could have achieved this kind of return by simply investing in an ASX-tracking index fund, such as the Vanguard Australian Shares Index ETF (ASX: VAS).
So for argument's sake, let's assume that a 9.1% rate of return will remain consistent into the future (which is by no means guaranteed).
How can you retire a millionaire on $60k a year?
If an investor put aside just $100 a week, starting at age 20, guess how much they would have at a retirement age of 65? It's not $1 million or even $2 million. This investor would end up with a nest egg worth a whopping $3.33 million by retirement age.
$100 a week for someone earning $60,000 per annum would represent approximately 10.78% of their after-tax weekly salary. As such, it might be difficult to find $100 a week for some workers earning $60k a year, especially if they have significant familial commitments.
But even if they found $50 to put away each week, they would still end up with a retirement fund of $1.66 million after those 45 years. That's the power of compound interest at work.
Now, this is a perfect scenario that might not play out perfectly in real life.
You also need to keep in mind that $100 a week over decades is a significant commitment. The compounding won't work effectively if you are skipping payments here and there, or only making investments when the share market is rising in value. After all, over the past 30 years, the markets haven't added 9.1% per annum like clockwork. They might go up 15% in one year, and then lose 5% the next. This is where a dollar-cost averaging strategy can help.
But even if our worker starts putting away that $100 every week starting at age 30, instead of 20, they would still get to retire a millionaire with a balance of $1.31 million by age 65.
So hopefully what this does illustrate is that you don't have to be ultra-wealthy to retire a millionaire. In fact, even an Australian on a salary that is below the national median can do it.
