You’ll need personal savings to help live comfortably in retirement. And that’s where your IRA comes in. Once you have a fully loaded emergency fund, it’s a good idea to focus on contributing to your IRA.

But what if you only have a $50,000 income to work with? IRAs max out this year at $6,500 for savers under age 50. Hitting that limit means parting with 13% of your earnings. That may not be doable. You can, however, build up quite a nice IRA balance even if you contribute less.

You might end up with $1 million or more

If you spend your $50,000 salary carefully, you might manage to save 10% of it per year, or $5,000. Meanwhile, the stock market has delivered an average annual 10% return over the past 50 years, as measured by the S&P 500 index. So if you save $5,000 a year over 40 years, you’ll end up with roughly $2.2 million in your IRA if you manage that same 10% average yearly return.

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Clearly, that would be awesome. But it also may not be doable. Parting with $5,000 a year on a $50,000 salary isn’t easy.

Granted, just because you’re earning $50,000 a year right now doesn’t mean your income won’t rise over time. As you continue to work, it’s conceivable that you might build skills that increase your earnings. But for the sake of this part of the discussion, we’ll assume you’ll always be working with a $50,000 annual salary.

If you can’t part with $5,000 a year, or 10% of your wages, that’s understandable. And it’s important to strike a good balance between saving for retirement and living your life.

You might be able to save $5,000 of your $50,000 salary by renting a cramped studio apartment and getting a roommate. But that sounds pretty miserable. 

So let’s say you’re only able to save $200 a month for retirement, or $2,400 a year. In that case, assuming that same 40-year window and 10% average annual investment return, you’re looking at an IRA balance of a little more than $1 million. That’s not too shabby at all. And it may be a more realistic goal to aim for, since it allows you to spend more of your income while also amassing a really nice nest egg.

Aim to ramp up contributions as your salary increases

We specifically ran some numbers to show what a reasonable IRA balance might look like on a $50,000 salary. But we also assumed that $50,000 would be your salary indefinitely. That’s unlikely. So if you like the idea of retiring with $2.2 million more so than a little over $1 million, aim to save your raises throughout your career. 

Perhaps you can only save $2,400 a year while you’re earning $50,000. But if your salary rises to $51,500, you might be able to ramp up your IRA contribution to $3,900 that year. Keep boosting your contributions as your income rises, and you could end up with a lot of money by the time retirement rolls around.

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