Higher Earners Have 9-Times the Retirement Savings as Lower Earners. Here's How to Help Bridge That Gap on a Lower Salary

The more money you can save for retirement, the more comfortable and enjoyable that period of life might be. Plus, certain expenses, like healthcare, have the potential to soar as you get older, so it's important to have plenty of savings to cover them.

It should stand to reason that higher earners are apt to have an easier time building retirement savings than lower earners. It's the same idea as higher earners being more likely to be in a position to afford a $500,000 mortgage or a $50,000 car than people earning a lot less. 

But new data shows that the retirement savings gap between higher earners and middle-income  households is truly significant. And if you fall into the latter category, it pays to take steps to address that gap.

A major difference in retirement savings

The median retirement savings balance for households aged 51 to 64 for the highest income group in 2019 was $605,000. That's nine times higher than the balance of middle-income households in 2019, which was $64,300, according to data from the Government Accountability Office.  

Now, it's not so surprising to see higher earners approaching retirement with more money than their lower-earning counterparts. But nine times the amount of savings is huge. 

While $64,300 may be a lot of money in its own right, it may not last very long in the course of what could be a 20- or 30-year retirement. So lower or average earners need to do what they can to get an advantage on retirement savings.

How to give your savings a major lift

Let's say you earn a $50,000 salary while someone you know earns $150,000. Saving $10,000 a year would, for you, mean parting with 20% of your income. For them, it would mean parting with a little under 7%. 

It's hard to pump massive amounts of money into an IRA or 401(k) when your income is just average. But if you start funding your retirement plan from a young age and invest your money aggressively by choosing stocks over safer investments, like bonds, you might end up with a comparable amount of wealth as higher earners.

Let's imagine you're able to sock away $150 a month in an IRA between the ages of 25 and 65. If your IRA or 401(k) generates an average annual return of 10%, which is consistent with the stock market's average annual return over the past 50 years, you'll end up with about $797,000. That's more than the $605,000 median retirement savings balance for higher earners in 2019.

Also, this example has you parting with $1,800 a year in total. If you earn $50,000 a year, that's less than 4% of your salary. And, it gives you the leeway to not start funding your retirement plan the second you graduate college and start working, too. 

All told, higher earners have a clear advantage when it comes to building retirement savings. But that doesn't mean you can't amass a comparable amount of wealth over time -- even if your income isn't all that high.