Average Joe Could Have Retired Rich

When talking about retirement investing, there is often a lot of conjecture and opinions. People come up with many scenarios and investment strategies. Projections into the future are tricky. However, looking into the past is easier. So, instead of discussion whether a 12% average stock market return is realistic, we can look at actual stock market returns from the past. Instead of considering whether a $50,000 income is realistic, we can look at incomes from the past.

Here is what we are going to consider today. We are going to consider a man named Average Joe. Average Joe was born in 1953. Average Joe started work at age 21. Average Joe always made the median income for his age bracket – so, he was a mid-level earner. Half the country earned more than him. The other half earned less. Average Joe contributed 15% of his income to his retirement account. Average Joe invested his entire retirement in an S&P 500 Index fund. It’s 2018 so Average Joe is now 65 years old. What follows will be a table of what would have happened to Joe’s retirement account balance.

Year Age Median income Retirement contribution S&P 500 return rate Growth from previous year New balance Notes
1974 21 $2,713.00 $406.95 -25.90% 0 $406.95
1975 22 $2,846.00 $426.90 37.00% -$105.40 $728.45
1976 23 $2,971.00 $445.65 23.83% $269.53 $1,443.63
1977 24 $3,237.00 $485.55 -6.98% $344.02 $2,273.19
1978 25 $13,410.00 $2,011.50 6.51% -$158.67 $4,126.02 Age bracket jump
1979 26 $14,672.00 $2,200.80 18.52% $268.60 $6,595.43
1980 27 $15,580.00 $2,337.00 31.74% $1,221.47 $10,153.90
1981 28 $16,092.00 $2,413.80 -4.70% $3,222.85 $15,790.55
1982 29 $16,416.00 $2,462.40 20.42% -$742.16 $17,510.79
1983 30 $16,805.00 $2,520.75 22.34% $3,575.70 $23,607.25
1984 31 $18,093.00 $2,713.95 6.15% $5,273.86 $31,595.06
1985 32 $18,662.00 $2,799.30 31.24% $1,943.10 $36,337.45
1986 33 $19,162.00 $2,874.30 18.49% $11,351.82 $50,563.57
1987 34 $19,927.00 $2,989.05 5.81% $9,349.20 $62,901.83
1988 35 $28,545.00 $4,281.75 16.54% $3,654.60 $70,838.17 Age bracket jump
1989 36 $29,437.00 $4,415.55 31.48% $11,716.63 $86,970.36
1990 37 $29,773.00 $4,465.95 -3.06% $27,378.27 $118,814.58 First time over $100K
1991 38 $29,301.00 $4,395.15 30.23% -$3,635.73 $119,574.00
1992 39 $29,491.00 $4,423.65 7.49% $36,147.22 $160,144.87
1993 40 $30,342.00 $4,551.30 9.97% $11,994.85 $176,691.02
1994 41 $30,707.00 $4,606.05 1.33% $17,616.09 $198,913.17
1995 42 $31,420.00 $4,713.00 37.20% $2,645.55 $206,271.71 First time over $200K
1996 43 $32,167.00 $4,825.05 22.68% $76,733.08 $287,829.84
1997 44 $32,851.00 $4,927.65 33.10% $65,279.81 $358,037.30
1998 45 $38,922.00 $5,838.30 28.34% $118,510.34 $482,385.94 Age bracket jump
1999 46 $40,804.00 $6,120.60 20.89% $136,708.18 $625,214.72
2000 47 $41,039.00 $6,155.85 -9.03% $130,607.35 $761,977.92
2001 48 $41,104.00 $6,165.60 -11.85% -$68,806.61 $699,336.91
2002 49 $40,969.00 $6,145.35 -21.97% -$82,871.42 $622,610.84
2003 50 $42,079.00 $6,311.85 28.36% -$136,787.60 $492,135.09
2004 51 $41,865.00 $6,279.75 10.74% $139,569.51 $637,984.35
2005 52 $43,627.00 $6,544.05 4.83% $68,519.52 $713,047.92
2006 53 $45,693.00 $6,853.95 15.61% $34,440.21 $754,342.08
2007 54 $42,129.00 $6,319.35 5.48% $117,752.80 $878,414.23
2008 55 $41,757.00 $6,263.55 -36.55% $48,137.10 $932,814.88 Age bracket jump
2009 56 $41,296.00 $6,194.40 25.94% -$340,943.84 $598,065.44
2010 57 $41,242.00 $6,186.30 14.82% $155,138.18 $759,389.92
2011 58 $41,550.00 $6,232.50 2.10% $112,541.59 $878,164.00
2012 59 $42,176.00 $6,326.40 15.89% $18,441.44 $902,931.85
2013 60 $41,915.00 $6,287.25 32.15% $143,475.87 $1,052,694.97 Millionaire!
2014 61 $43,280.00 $6,492.00 13.52% $338,441.43 $1,397,628.40
2015 62 $46,698.00 $7,004.70 1.36% $188,959.36 $1,593,592.46
2016 63 $47,001.00 $7,050.15 12.25% $21,672.86 $1,622,315.47
2017 64 $47,001.00 $7,050.15 21.14% $198,733.64 $1,828,099.26 No current data, taking previous year’s income
2018 65 $47,001.00 $7,050.15 $386,460.18 $2,221,609.60 No current data, taking previous year’s income

Joe has now retired and has a $2.2 million in his account. Over Joe’s investing lifetime, the S&P500 averaged 11%. If the S&P500 returns an average of just 6% in retirement – much worse than during his working lifetime – Joe can take out $132,000 each year and never touch his $2.2 million, which he can leave to the next generation. (And note that his retirement income is more than two and a half times his working income. Nice!)

Don’t believe the numbers? Here are the sources:

Average income by age bracket: https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-people.html – I used the table “Age—People by Median Income and Sex”, took the all races model, and looked at men. (The women figured would have been skewed downward by the higher rate of part time work among women. The current gender pay gap has women earning about 80% of what men earn for full time work. However, looking at the table shows that the median female income is about 63% of what men earn. So, if you were to do this for full-time working women, you could pessimistically multiply the results by 60% and get about $1.32 million. And no matter what you multiply it by, the retirement income is still 2.5 times the working life income.) The age brackets are 15-24, 25-34, 35-44, 45- 54, and 55-64. Wage data ended in 2016, so I copied and pasted the wage for 2017 and 2018. In 2018 I took data from the 55-64 age range, since the 65+ age range was skewed downward because many people in that range are no longer working.

Average S&P500 return: https://seekingalpha.com/instablog/605212-robert-allan-schwartz/4831186-annual-returns-s-and-p-500-1928-2015 (here’s the source for 2016 and 2017)