zero day finance how to retire on a $30,000 income

How to Retire when you only make $30,000 per year

Most people think of retirement as a rich person’s dream. To retire, you need to wear a suit, earn hundreds of thousands of dollars per year, and invest most of it. With a multi-million dollar nest egg, you can finally “live the dream” of retirement. There is no way a household that earns $30,000 per year can ever afford to retire, right? Wrong. Even if your income is $30,000 per year, you can still retire, it just takes a little bit of planning.

If you make $100,000 per year, retiring is fairly straightforward. Max out your 401(k), max out your IRA, and you’ll have $4,691,000 assuming a 7% real rate of return for 40 years. With this nest egg, you can safely withdraw $187,000 per year from your retirement portfolio and just live on a beach in the Caribbean. While you are saving for retirement, you need to figure out how to live on about $4,000 per month which isn’t hard. In fact, you’ll live a life of relative luxury.

Low Income Retirement Case Study

There is plenty of advice geared towards high income earners that tells them exactly how to retire. In fact, I just summarized all of these: max out your 401(k) and IRAs. Retiring early has become “trendy.” There are plenty of resources dedicated to providing instructions on how to retire in 20, 15, even 10 years or less.

The problem with these is that they aren’t for the average person. They really aren’t even for people in the 75th income percentile (about $65,000 salary). Most people simply cannot afford to max out both their 401(k) and IRA. Ignoring the 401(k), maxing out your IRA can even be a challenge. Plus, there are always bills to pay, and things come up. So are low income earners screwed? No, they aren’t. If you want to find out how to retire if your household income is $30,000, keep reading.

Understanding $30,000

First of all, why did I choose $30,000? According to 2014 U.S. Census data (as summarized on Wikipedia), earning $30,000 in household income puts you in the 25th percentile. If we take a look at the 25th percentile for individual income, we see that number is $20,000 per year. Most people would characterize this as low income.

We also know a little bit more about these households. For example, they are characterized by having 0.87 full-time working adults, with an average household size of 2.23 persons. Let’s just say 1 full-time working adult, with a household size of 2. This means our household has a single earner making about $20,000 per year. In addition, they earn about $10,000 in government benefits per year. This puts our household at the $30,000 household income figure. I’m obviously simplifying a lot of things, but it gives us a rough idea.

What type of households are we talking about? Here are a few examples:

  • A single parent with a child
  • A married couple
  • 2 unrelated people living together

In the first scenario, you have a child so they cannot work. In the last two scenarios, your partner or roommate isn’t working, most likely due to a disability. There are obviously other reasons, and we won’t inquire why. We will not judge them, and we will not blame them.

On a $30,000 per year income, you can expect to make at least $2,000 per month after taxes between your salary and benefits, for a grand total of $24,000 – $26,000 per year. If you live in an area without state taxes, this number will be even higher. This is not a lot of money, but that won’t stop you from retiring. Quite the contrary, you can retire with this given some hard work, which starts at creating a strict budget.

Be Realistic with Your Expenses

Given that you earn at least $2,000 per month, you need to budget accordingly. This means:

  1. No expensive rent
  2. No expensive car payment
  3. No eating out for lunch and dinner every day
  4. No ridiculously luxurious vacations

Are any of these really hard? Yes and no. If you are only earning $30,000, don’t make the decision to live in New York City, Washington, D.C., or San Francisco. Just don’t do it. I say don’t do it because you cannot afford it. You aren’t making a lot of money, so you don’t live like it. In fact, don’t live anywhere near a big city. Find a city where you can find a reasonable rent for a 1 or 2 bedroom apartment, and live there.

As an example, you can find a 2 bedroom apartment in Rome, NY for $675 per month. This is right near the Air Force Research Lab so there are supporting jobs in the area. You could also drive to Syracuse or a neighboring town for work. Commuting is a solid 45 miles per direction which is expensive, but you can find smaller towns nearby.

Splurging on a car is very easy. I remember reading that the average new car price is north of $30,000 which is ridiculous. If you earn $30,000 per year between your pay and benefits, you cannot afford a $30,000 car. However, you can very easily find a reliable car for $8,000. For example, the Kelley Blue Book value for a 2011 Honda Civic in very good condition is about $8,100. On a 60 month loan at 4% APR, you are paying $147 per month. Even with a higher interest rate, you can stay below $200 per month. You could also find a slightly newer one for $10,000 and keep your payments below $200 per month.

Most people spend way too much money on food. In reality, if you very rarely eat out, it is not that challenging to feed each adult on $150 per month for a grand total of $300. I have spent a significant amount of time contemplating food budgets. The reason is that I have trouble sticking to them. But try it for yourself. See if you can feed each member of your family for $150 each. If you need help, check out meal prep sunday, a free resource to help you plan out your meals and spend very little money doing it.

Finally, you don’t need to go on fancy vacations. Vacations are expensive, very expensive. But they don’t have to be. I was able to to get an all-inclusive Dominican Republic 6-day, 5-night vacation for $699 on Groupon (airfare included). If you make $30,000 per year, maybe plan one of these every other year. You could budget $25-$30 per month and afford it.

You can always take a “staycation” or go on a road trip, two much cheaper options.

zero day finance resort vacation

Building Your Budget

Now that we know what you can reasonably afford on your $2,000+ per month salary, let’s put together a sample budget. Most people suck a budgeting. To be honest, budgeting is easy if you stick to a few key principles. Keep your rent as close to 30% of your take home pay as possible. Keep your car payment + insurance + gasoline as close to 10% of your take home pay as possible. Try and save at least 10% of your income.

These are not steadfast rules. In fact, you’ll see that we break some of them to be realistic. Remember they are guidelines, not strict rules to follow. Just do your best. Here is an example budget that you can use.

Rent: $675 (utilities included)
Car Payment: $150
Car Insurance: $100
Gasoline: $60
Groceries: $300
Health Insurance: $200 (or $0 if you are in a generous state like NY)
Total: $1,485

This is mostly it. You’ve got your housing, transportation, food, and health insurance taken care of. You have a budget surplus of $515 per month, which is $6,180 per year. I know what you’re thinking, nobody can live on $1,500 per month. But there are plenty of people who do it. It will not be easy at first, but it is definitely doable.

If you have trouble budgeting, you’re in good company. Pretty much everyone does. If you want to find out ways to reduce your spending, check out how I’m on track to reduce my spending by $18,432 this year with the Zero Day Challenge. Not only will it help you save money, but your mindset will become more frugal and saving money will become significantly easier.

Invest the Rest, Retire Comfortably

In our sample budget, we have $515 of extra money per month. Most people would just spend it, but we want to comfortably retire when we turn 65. So instead of spending it, let’s save it.

To start off, let’s add $215 of “padding” to our budget above. Maybe you can’t find an apartment this cheap or your insurance is more expensive. Gas prices change, and there are always things that just come up. You could also use this $215 to build your emergency fund, maybe you add in toiletries and going out to dinner once or twice a month because you only live once. Regardless, we’ll subtract $215 for extra expenses every month.

This leaves $300+ per month to save for your retirement. You need to invest this $300 per month in your Roth IRA. You almost certainly want to choose a Roth IRA because of the tax benefits. When you invest in a Roth IRA, you invest post-tax dollars and you can withdraw your money tax free.

In addition, you get some nice tax breaks. Your $20,000 (remember $20,000 salary + $10,000 government assistance) income becomes $0 after two standard deductions and exemptions. You get this because you live in a 2 person household. With an adjusted gross income of $0, you don’t owe any federal taxes. In addition, you can use the saver’s credit to further reduce your taxes (if you happen to owe them).

Now that you’ve made the decision to $3,600 per year in your Roth IRA for 42 years, what happens to it? Your portfolio will grow. Slowly at first, but it starts to seriously pick up steam after 15 years. We’ll assume that you never get a pay increase so you cannot increase your contribution.

After 42 years at 7% portfolio growth, right as you turn 65, your nest egg will be worth $830,000. This will produce $2,766 per month in income. In addition, you’ve earned social security. The average social security benefit is about $1,300. Let’s say yours is only $1,000. Your monthly retirement income is now $3,766. Almost double what you made during your working years.

This doesn’t even take into account the spousal Social Security benefit. Whether or not you live with your partner, just marry them, and they’ll get half of your Social Security check. Your household income in retirement will now be $3,766 + $500 = $4,266. This is the equivalent of $51,192 per year in retirement spending.

Sacrifice and Planning

Hopefully, you can see that retiring on $30,000 is completely possible. In fact, it is highly probable given a little sacrifice and planning.

The first thing it takes is sacrifice. You don’t need a $1,500 per month posh studio apartment in a nice area. You don’t need to blow $100 every Friday night at the bar. These are all luxuries that don’t really improve our lives very much. Honestly, I don’t consider them sacrifices. But remember we subtracted an additional $215 for your budget. This can cover a few meals at restaurants or other luxuries. I really subtracted this so you could enjoy your working years.

The second thing it takes is planning. You need to stick to your budget, and invest whenever you can. This means taking that $300, not spending it on takeout, and depositing it into your Roth IRA for 42 years. This isn’t trivial. In fact, it’s really tough. Most people lack the discipline to do it. But if your household only makes $30,000 per year, you need to figure out how to do it. In the end, the results are worth it.

Anyone Can Retire Comfortably

I’m not lying and I’m not being hyperbolic. Anyone can retire comfortably. In this thought experiment, we haven’t given any increase to our income (outside of an implied yearly increase commensurate with inflation). We are also focusing on households with 2 people in them, but only 1 person is working. If you are living with your child, they will eventually move out and you can get a smaller apartment and save money on groceries.

In all honesty, if you are making $30,000 per year, you have an income problem. There are plenty of free resources where you can learn new things, such as the Internet or your public library. Both are free. You can always learn a topic and try to side hustle like tutoring for extra money. You might even be able to pick up an extra day or two of part-time work bartending, being a nighttime Hotel monitor, etc.

We also based this thought experiment on being a 25th percentile household with a 25th percentile individual income. 75% of households and 75% of people make more money than this. So if your household income or individual is more than these numbers, retiring is even easier with some work. I would implore you to try and improve your situation with a bigger salary.

I hope that I’ve convinced you that anyone can retire comfortably with a little sacrifice and planning. Most of my readers fall into the category of $75,000+ income per year. For everyone who earns less and even significantly less, you can do this! If you need any help, please comment or send me an email at david[at]zerodayfinance[dot]com.

Good Hunting,
David


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23 thoughts to “How to Retire when you only make $30,000 per year”

  1. Great post. My salary did not exceed $30K until I was 30 years old. My budget was very similar to what you described. At the time, I was also paying to attend college. From age 20 – 30, I still managed to save/invest about $500 per month. Looking back, It was a great time in my life. I honestly did not feel deprived of anything. Plus, learning how to live and save on a low salary conditioned me to be an even better saver as my salary grew.

    1. Thank you! I’m glad that my budget is realistic. Living on a budget like that definitely helped you for the future, especially if you can avoid lifestyle inflation. And it stops you from relying on material things for happiness.

    1. Thank you Ms. FAF! I purposefully picked the 25th income percentile so most people can follow this guide. There are still millions of families that earn less than $30,000 in household income per year, and they’ve gotta work hard to increase that number. But for a family earning the median income ($57,000), they can retire at 65 with roughly double the income, or retire about 7 years earlier with the same income. Didn’t realize this level of budgeting would let you go FIRE.

  2. I’m glad to see articles like this. We really need to help those who need it most. Most probably won’t do anything about it but even if we connect to one percent of those who normally wouldn’t do anything, that’s over a million people.

    1. I’m trying to shift my follower demographics to include lower income people, because this type of content would be extremely helpful for them. But most people would benefit from just starting to save in general.

  3. Impressive post and very well written. Absolutely love this type of content and hope it reaches the right audience to boost their confidence in achieving a fulfilling retirement. But this is also likely helpful for those even slightly above this income who are feeling discouraged. Keep up the kind work!

    1. Thanks Zed! You’re exactly right, all of this applies to people who make more than $30k but have trouble saving. If they can reduce expenses even slightly, they can come out ahead over time.

  4. Nice post David. Yeah anyone can retire comfortably if they plan it out like you did here and live within your means. Cut down on eating out, retail shopping and invest your savings.
    BTW, I’m going in on your zero day challenge. Really interested to see how many days i spend no money in a month.

  5. Really great post. Too often people feel like they need to be rich first in order to retire so instead of saving they just spend everything assuming it won’t matter anyway. But you showed that with some planning and budgeting, even the average household can retire comfortably. Once you drop the idea of retiring to your own private island, you can see that the path to a reasonable retirement is possible.

  6. This is pretty close to my monthly spending now, and I’m glad you broke down the “extra money” and talked about a buffer. There is some truth to the saying “It takes money to make money” – living at your means is one step away from credit card debt and deadly interest rates. At a little below your means, you can do things like save (and earn interest), pay out of pocket for emergencies, plan ahead on expenses and shop sales, or put that money to work. Compounding happens either way, but I think debt is a much more slippery slope.

  7. Overall a good post. At the same time, I found it very discouraging… I get the feeling from the comments that “people with lower incomes” are a bit of a mystery to people with higher incomes. 🙂 Most people don’t end up with a low income because life has been going well. Many of us have had a lot of shtf and your example above ignores all that crap in life. Yes, someone able bodied without anything else going on should be able to manage as you say. But in my lower income neighborhood, I’ve friends in a variety of bad situations. I personally earn more than that $30k and cannot imagine saving $300 a month towards retirement. (Plus the recommendation that people with lower incomes not live in bigger cities will certainly shoot you in the foot when there’s no one left to do the scutwork for you.)

    And your budget leaves out a lot of expenses caring for a child if it’s a single mom with a kid (everything from daycare to a car seat to shoes… I’m still wearing exactly the same clothes as I was 5 years ago but my kids certainly can’t! Even at the thrift store, clothes cost something and the school would call social services if I didn’t dress them appropriately for the weather.)

    I live in the Denver area with kids and husband. Due to my spouse having a fluke injury that caused a stroke back when our kids were younger, I’m that only-adult-worker with a mildly disabled other adult in the house you mention. Not disabled enough to qualify for disability but enough that no one will hire, so it makes more sense financially to have the free babysitting of a stay at home parent. I have my degree for a professional career and have the potential to earn somewhat more than I do but it’s hard to really make the most of my career while caring for my spouse and kids. We are paying a $1200 mortgage on an 850 sq ft house where it now costs $1300 for a studio apartment. To find more affordable housing, we’d have to move over an hour away. One of my children has significant special needs so we need to stay in an area where we can get services plus after my spouse’s stroke, I’m not able to just uproot us and move us far from extended family and friends without adding significant expenses since they are such a help. Just the copays for my child’s and husband’s appointments and medications add up. And that same child has to have certain dietary restrictions that make our food budget more expensive. Our gas is blessedly under $60 (we don’t drive much!) and our only car is paid off but all our other expenses are over your budgeted amount despite me being extremely frugal (and exhausted). The only reason our insurance is under $500 is we get subsidies through the ACA and our kids have CHP+. If that’s gutted, we’re screwed. We’re still paying off credit card debt and medical bills from my husband’s medical crisis even though it was years ago. Every time I think we’re getting ahead, the car breaks down or the roof started leaking. We have never eaten out (finding a place my kiddo can eat is impossible anyway). We don’t have any vacation at all… Indeed, since I don’t get paid vacation, the most I do is take a long weekend to catch up on stuff at home.

    Yes, I’m saving for retirement. $50 every month no matter what. So I’m hoping social security will still be around to help eek things out. When my kids are grown and the mortgage is paid off, I’ll try to save as much as I can.

    But honestly, I find your advice for people with more money more helpful… I think you know more about that. Please keep writing!

    1. I just want to say thank you for taking the time to write this very detailed comment. I want to help people out who need it most, and I cannot say that I’m in a position to understand everything that lower income folks go through. You are 100% right, I do not understand all of the challenges that people with lower incomes have, and it obviously shows.

      I”m glad that you are saving $50 per month for retirement, and paying off a mortgage really helps you out. Would you be willing to do me a huge favor? Would you mind if I emailed you to talk about your situation more? To write this post, I talked to a few of my friends earning about $30k, but they were mostly in the south where you can find a place to rent for $500/mo. I would like to about your situation to learn more.

  8. Terrific breakdown David, I really should have done mine instead of being lazy so we could compare and contrast, oh well still time down the road.

    I chose the current minimum wage which is around $28K and in my head I was trying to work out how one could save and retire…I was having a hard time. Because I was thinking about a single parent with two children scenario. In a high rent but high low income job demand scenario. There’s no way one would go through that without government housing assistance even without a car. Anyway, I couldn’t even pan it out in my head so I buried the topic. What’s helping those I know that are making under $30K a year was cohabiting with a larger family and striping every penny except for the occasional lotto ticket or smoke. And you can’t fault them, its the few luxury they have.

    1. My philosophy is to never judge. One thing I do a lot is give homeless people money. A few bucks here, maybe $5 or $10 there. I know they’re gonna spend money on cigarettes and other stuff instead of food or cleaning their clothes so they can go on an interview.

      But I have absolutely no right to judge them or their lifestyle. They are living in much tougher conditions than me, facing hardships that only appear in my nightmares.

      I wrote this post because I want to give people hope. Hope that they can work hard for something relaxing in the future. Hope that their future isn’t bleak.

  9. As a former impoverished person, I appreciate your tone and that you know that there are things you don’t know. You’ve got a good case of empathy, friend.

  10. I appreciate this post and I think the take home message of basically “live below your means” is fair for a lot of middle and even lower-middle income people. A few oversights though…

    1) Where’s the mention of student loan debt? The majority of Millennials have some amount of student loans. I know you state that this hypothetical person makes $20,000 in income and $10,000 in government assistance so they’d qualify for, but loan debt can’t be deferred or put in forbearance forever. Yes there are income based payment plans, but that’s still a *payment* plan, which is coming out of your monthly income. And as any half hearted Google search will show, it’s not fair to assume that a college degree means higher earnings.

    2) Despite the lack of student loans in the calculations (and the optimism that social security will still be solvent in 40 years), this post is clearly written for someone who is very young. 42 years of savings in order to retire?? I’d really like to see the post on how to retire (at any age under say 75) when your meager retirement savings were wiped out during the recession, or they were withdrawn for an emergency and you’re starting over at age 40 — with an annual income of $30,000.

    It is *awesome* to encourage young people at lower income levels to save for retirement, but we’ve also got a more immediately looming retirement crisis in the US — and that’s those older folks (X-ers and Boomers) who have saved very little and many of whom make very little to begin with. Again, I personally would like to see a post that addresses personal finance for those folks — how do you come close to catching up? It’s one thing to find 10% of your income, but when you’re not making the big bucks it can be damn near impossible to find %20, 25, 30…

    1. Hey Emma,

      Thanks for your comment! Let’s go through the points that you bring up.

      1) I didn’t mention student loan debt because everyone’s situation is different. The average student loan debt for people around my age (27 years old) is about $30,000 – $35,000. This means people are going to be making $350 – $450 payments every month for the next 10 years. The important thing is that these are loan balances for Millennials, people who are young enough to start saving early, and take advantage of compound interest.

      I’m also going to have to disagree on what you say about wages with respect to level of education. There is absolutely a positive correlation to amount of education, and wages. The more education you have, the higher your wages will be, on average. Here are a few sources:

      https://smartasset.com/retirement/the-average-salary-by-education-level
      https://www.bls.gov/emp/ep_chart_001.htm
      https://www.dol.gov/general/topic/wages/educational

      So on average, people with more student loan debt will be able to earn more money, which will help them achieve a better financial situation. Of course, there are exceptions. And with 330 million people in America, there will be thousands, perhaps tens of thousands of exceptions.

      2) I assume that Social Security will exist in the future, because I believe the odds that Social Security will be there in the future are higher than the odds that it won’t. It’s tough to make projections into the future. When I do that, I make predictions based on the idea of “the path of least change.” This means I assume SS will still be there. 42 years of savings in order to retire gets you to the old retirement age of 65, and assumes that it takes the average adult 1-2 years to find a job after they graduate college. I think that’s a pretty fair assumption.

      The reason that there aren’t any blog posts on how to retire at any age, is because you unfortunately cannot retire at any age. If you are 60 years old, make $30,000 per year, and have no savings, you’ll probably need to work into your 70’s, which sucks. If you have a low income, time is your best asset. The key to retiring is consistently living below your means. It doesn’t matter if your income is $10,000 per year or $200,000 per year. If you consistently live below your means for a few decades, you can retire. If you cannot consistently live below your means for a few decades, then you can’t retire. The math doesn’t lie, it’s just a fact that all of us have to deal with.

      No BS. If you are older and want to retire, you’ll need to call up your kids, and ask to live in their house rent free. Because if you’e been low income your entire life, have no savings, and a maybe $1,000 in SS per month, you’re going to need some help. It’s a serious problem that we do not currently have a solution for.

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