The Hill News

Let us examine what happens to the wealth and income of a “high saver” and an “average saver” with a middle-class salary of $50,000 per year.

Without getting into the appropriate portfolio strategy for this middle-class investor, let us assume that our saver receives a 6 percent rate of return on his investments. This return is below the average return achieved by most private pension funds over the past 50 years and below the 8 percent assumed by most government pension funds.

If the middle-class wage earner is a “high saver” who saves 10 percent of his annual salary, or $5,000 per year, his wealth will be $70,000 at the end of 10 years. His annual income from this wealth will be $4,800. If he does not get a raise in his salary, his total income will be $54,800, or 9.6 percent higher than if he had not saved.

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