What is the average Retirement Income in the US? (2024)
What is the average Retirement Income in the US?
Your retirement income will significantly influence your lifestyle during your golden years.
From determining the amount you need to save for emergencies and healthcare to other critical aspects of this stage in life.
Retirees typically draw income from various sources. For many, this includes a mix of pension payments, withdrawals from retirement plans, investments, Social Security benefits, and even part-time work.
The average retirement income in the US for adults aged 65 and older is $75,254, according to data from the Census Bureau and the Bureau of Labor Statistics.
To have a secure and comfortable retirement, it's important to plan for having an average or above-average income in the future.
The most effective way for any adult to do this is to understand how to navigate the retirement system and secure an income that reflects the comfort you deserve after years of hard work.
Keep reading as we share valuable insights about your retirement income.
What defines retirement income?
While you're working, income comes from paychecks, investments, and side business. But in retirement, "income" takes on a new meaning.
Your retirement “income” encompasses all funds—whether earned, withdrawn, or received as benefits—that you can use to cover your expenses during this phase of life.
There are two main types: guaranteed and non-guaranteed:
- Guaranteed retirement income includes Social Security, a pension, and annuities.
- Non-guaranteed retirement income consists of retirement accounts like 401(k)s and IRAs, additional investments and savings, and other income sources.
A good retirement income portfolio usually includes various sources and a clear idea of how much you need.
National average retirement income figures
According to the most recent data from the United States Census Bureau, individuals aged 65 and older have a median annual income of $47,620, while the mean annual income is $75,254.
However, retirement income can differ significantly across the U.S.
In the state with the highest average retirement income, households earn more than double the amount earned by those in the state with the lowest figures.
These differences come from various factors, such as local wage levels, cost of living, tax rules, the number of pension plans, and more.
Typically, states in the Northeast and along the West Coast tend to offer higher retirement incomes, while Southern and Midwestern states usually fall behind in average retirement earnings.
You can check the average retirement income in the US by state, according to Wisevoter.
Median vs. average retirement income
The United States Census Bureau reports that the median annual income for individuals 65 and older is $47,620, while the mean annual income is $75,254.
On a monthly basis, the average income for U.S. adults aged 65 and older is $6,252, while the median monthly income is $4,191.
The median income is the middle value in a sorted list. This means that half of retirees earn more than $47,620, and half earn less. It gives a realistic view of the usual earnings among retirees.
The overall average income can be skewed higher if a small number of retirees have significantly higher incomes.
Because the median is less affected by extreme values, it provides a more accurate representation of the typical income for people at retirement age.
But what's the catch?
Not everyone 65 and older is retired; some people in this age group are still working.
Most data sources don't distinguish between retirees and non-retirees when reporting income by age.
So, be careful when analyzing the data.
Key data from Social Security and pensions
Social Security and pensions are some of the main sources for retirees in the United States, but here are some interesting facts about it:
- As of June 30, 2024, nearly 90% of individuals aged 65 and older were receiving Social Security benefits.
- For many seniors, Social Security serves as the primary source of income.
- On average, Social Security benefits account for approximately 30% of the income for individuals over 65.
- Alarmingly, 31% of the private-sector workforce lacks access to private pension coverage.
- Receiving a pension could potentially lower your Social Security benefits, depending on whether it's from a private or public employer.
- In the United States, traditional pension plans are becoming less common and are being replaced by 401(k) retirement savings plans, which are less expensive for employers.
How do sources of income vary by retiree?
Your retirement income typically comes from three sources, known as the "three-legged stool" or the "three pillars":
Social Security benefits, employer retirement accounts (or pensions), and income from personal savings or assets.
Social Security
Social Security is a retirement benefit set by the government.
Chances are you're familiar with this pay-as-you-go system.
When you work, you pay into Social Security, and once you retire, you start obtaining benefits from Social Security.
On the bright side, Social Security benefits are adjusted for inflation.
However, Social Security is not meant to provide all the income you need in retirement; the average monthly benefit is $1,907.
Right now, Social Security is facing financial challenges that may lead to cuts and a shortfall in retirement income.
A survey from the National Institute on Retirement Security found that almost 90% of Americans are worried about the funding of Social Security.
Pensions
A pension or defined benefit plan is a retirement option funded by your employer, but it's not commonly offered by private companies.
Your payout amount is typically based on how long you've worked, your salary, and your age. You can always ask your HR department for an estimate of how much you might receive.
Like Social Security and an annuity, a pension provides a guaranteed monthly payout.
However, most pensions are not adjusted for inflation, and not every job offers a pension.
Personal savings and investments
Investments and savings usually include things like mutual funds, stocks, bonds, and brokerage accounts that are not part of other retirement savings accounts.
These are often connected to either the stock market or the prevailing interest rate, and are subject to taxation.
Factors influencing retirement income levels
When planning for your retirement income, it’s important to consider common factors that can impact how much you’ll have available to spend.
Age, location, and employment history
Retiring early may result in lower income from sources like Social Security and pensions.
Postponing retirement often leads to higher rewards.
Location is also key to retirement income due to the range of living costs and economic conditions across regions.
Higher cost of living states like California and New York may require more savings compared to lower cost of living states like Mississippi or Arkansas.
Work history also plays a big role, especially in terms of access to employer-provided pensions and Social Security benefits.
Working for companies with strong pension plans can lead to a more secure retirement income compared to jobs without such benefits.
Lifestyle and healthcare costs
Each retiree's lifestyle is unique.
Housing, travel, hobbies, and dining expenses will vary from person to person.
If you want an active lifestyle, frequent travel, or expensive hobbies, you will need a larger income to support these activities.
But the most significant expense that every retiree shares in common is healthcare.
As people age, their healthcare needs increase, leading to higher payments for insurance, medical appointments, and medication.
How to compare your retirement income to the average
As retirement approaches, it's natural to wonder how your retirement savings compare to others.
It's important for your retirement savings to be in line with those of your peers.
Budgeting for retirement based on income levels
Before retiring, it's important to consider your lifestyle and how much it costs.
People need about 70% to 80% of their pre-retirement income to cover expenses during retirement.
- Prioritize the essentials, including utilities, food, insurance, maintenance, rent, and a mortgage if applicable.
- Review your past spending.
- Remember to consider federal, state, and local taxes, including income, property, and sales taxes. Income taxes may decrease, while property or sales taxes may increase.
- Make sure to adjust your budget every year to account for inflation, which generally averages 3.3% annually.
- And most importantly, build a healthcare plan.
Strategies to increase retirement income
When planning for retirement, focus on building reliable sources of income and strategizing how to withdraw funds.
Some strategies are:
- An annuity is a financial product from an insurance company. You pay a lump sum of money to the issuer and, in return, receive a guaranteed stream of income.
- The 4 percent rule suggest that you withdraw 4% of your retirement portfolio in the first year and adjust for inflation in the following years. This can help you maintain your savings over time.
- You can choose to withdraw a specific percentage or amount of money regularly using the fixed-percentage or fixed-dollar withdrawals method.
We have a complete article about the best retirement strategies that you can access here.
Conclusions
Retirement is a whole journey with many factors to consider.
Now that you understand the average retirement income in the US, the factors that may influence your own income, and how to ensure it lasts enough, it’s time to take action.
With a financial advisor, you can begin a comprehensive plan that guarantees your golden years are at ease.
At Bloom Financial, we are ready to help you to establish the right path.
Reach us here.
