As you approach the golden years of retirement, financial and retirement security takes center stage. Questions about what is a good monthly retirement income, the average retirement income in 2023, and the strategies to achieve it become paramount.
In this comprehensive guide, we’ll delve deep into the world of retirement income, offering insights, strategies, and expert advice to help you maximize your financial well-being in your post-work years.
I will certainly share the latest data on the average and median retirement income to give you a useful baseline. But as a financial planner for nearly three decades who has helped thousands of people retire, I know it is far more important to understand what’s a good monthly retirement income for you.
Unlike other articles you may read, I will leverage my first-hand experience to provide personalized guidance that helps you answer this critical question based on your specific circumstances, not vague generalities.
Can You Live on $4,000 a Month in Retirement?
Determining a suitable monthly income goal for retirement requires careful consideration of your unique circumstances. While general benchmarks like replacing 75-80% of your pre-retirement earnings provide a starting point, calculating a number tailored to your lifestyle and sources of income is key.
Take a close look at your current household spending and how this might shift in retirement. Track every expense for several months to build an accurate picture. Budget extras for increased healthcare costs as you age. Factor in any large one-time costs like travel plans or home repairs coming up. This analysis forms the foundation for estimating adequate ongoing income in retirement.
Next, tally up your guaranteed income streams from Social Security benefits, pensions, annuities and other confirmed sources. Compare this fixed income to your budgeted expenses to identify any gap that needs to be filled from retirement savings and investments. Don’t forget to account for taxes. Building in a buffer for unexpected expenses is also wise.
There’s no universal formula that applies to everyone. A retirement income target needs to align with your personal circumstances, priorities and stage of life. Meet with a financial advisor to crunch the numbers and gain insights tailored to your situation.
Key Takeaways: What Is a Good Monthly Retirement Income?
According to the US Census, Social Security accounts for just over half of total income. Earnings income is the second-largest source at 19.3% of total income, followed by pension and retirement account income at 17.2% of total income.
- Calculate a retirement income target tailored to your unique situation and sources of income. Benchmarks help but personalization is key.
- Build your retirement budget based on current and future lifestyle desires and costs. Be detailed.
- Maximize guaranteed income streams like Social Security retirement benefits and pensions to create a foundation.
- Withdraw carefully from retirement assets to generate supplemental income through at least your life expectancy. Wondering if you will Outlive Your Money?
- Boost income where possible through work, relocation, annuities, and expense reduction.
- Focus on middle value national incomes, not inflated averages, for realistic lifestyle planning.
- Location significantly impacts required income due to cost of living differences.
- Ongoing reassessment of your income and expenses is crucial as circumstances evolve.
What Constitutes a Good Monthly Retirement Income? Retirement isn’t just about leaving the workforce; it’s about stepping into a new phase of life that demands careful financial planning. But what does a good monthly retirement income entail?
Defining a Good Monthly Retirement Income: A good retirement income varies from person to person. It’s the income that allows you to maintain your desired lifestyle and cover essential expenses without constantly worrying about finances. Rather than focusing on an arbitrary number, it’s about aligning your income with your aspirations.
Setting Your Personal Benchmark: To determine your ideal retirement income, consider your current lifestyle, anticipated expenses, and desired leisure activities. An often-cited rule of thumb suggests aiming for 70-80% of your pre-retirement income. However, this can change based on your circumstances and expectations.
Factors Influencing if You Can Retire Comfortably Several factors influence your retirement income requirements. These include your health, family situation, housing choices, and location. For instance, living in an expensive city might require a larger income compared to retiring in a more affordable region.
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What Is a Good Monthly Retirement Income For a Couple?
- For married couples, determining an appropriate monthly retirement income target requires looking at your finances holistically.
- Add up current household income from all sources, including any earnings from part-time work. Project Social Security payments for each spouse, as well as income from pensions, annuities and other guaranteed streams.
- Don’t forget tax implications that will affect net income.
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On the expense side, track total recurring household spending. Budget for changes like increased time together at home. Factor in large upcoming one-time outlays like travel, home repairs or a new car. Account for healthcare costs which are likely to rise as you age. Build in a cushion for unexpected expenses.
Compare your projected reliable retirement income to monthly expenses to identify any gap. This shortfall is what needs to be covered by withdrawals from retirement holdings. The 4% rule provides a starting point, where you initially take out 4% of total savings and adjust over time.
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What The Numbers Say About Retirement Income For Couples
Here’s the revised version of the introductory bullet point section, addressing the inconsistencies and providing explanations:
- The median income for married couples aged 65+ is $75,819, while the average is $108,225, according to the U.S. Census Bureau. Note: The median income represents the middle value in a dataset, while the average (mean) is the sum of all values divided by the number of values. The difference between these figures suggests some higher-income couples are impacting the average.
- However, the middle earnings for all adults aged 65+ in 2023 is $47,620. Note: This lower midpoint of income is an indicator that a significant portion of retired adults earns less than the $75,819 halfway point for married couples. It provides a more balanced perspective of income distribution.
- The average monthly retirement income adjusted for inflation in 2023 is $4,381.25, per the 2022 U.S. Census Bureau report. Note: Adjusting for inflation helps compare incomes across different years in terms of purchasing power. This figure provides an estimate of the actual value of retirement income in 2023 dollars.
- This equates to an average annual income of $75,254 for adults aged 65+ in 2023. Note: The annual income is calculated from the average monthly income. It’s important to consider this figure in relation to both the median and average incomes for a more comprehensive understanding.
- The median income of $47,620 may be a more accurate representation than the average of $75,254. Note: In cases where there’s a wide range of incomes, the mid-range can offer a better overview because it’s less affected by outliers. When the middle mark is lower than the average, it indicates more retirees earn less than the average.
- Note: This observation highlights that a relatively small number of higher-income retirees can significantly skew the average income figure.
- Note: While these statistics provide insights, determining an ideal retirement income is highly personal and should consider an individual or couple’s specific needs and preferences. The ideal retirement income depends on individual lifestyle factors.
Determining A Good Monthly Income For YOU
- Aim for 70-80% of pre-retirement income as a starting point
- Factor in all sources of retirement income: Social Security benefits for each spouse, Pension payments, Income from retirement savings and investments
- Account for changes in expenses: Potentially lower costs like commuting and work clothes, Potentially higher healthcare and insurance costs
- Consider lifestyle goals and location plans
For example, a couple earning $10,000 per month before retirement would aim for around $7,000 – $8,000 in monthly retirement income. This factors in Social Security providing $3,000 per month, pensions adding $1,500 monthly, and $2,500 – $3,500 withdrawn from your retirement portfolio. Their budgeted expenses in retirement are $6,500 per month, so their income target allows for a buffer.
What factors should you consider when determining a solid monthly retirement income
Calculating an appropriate monthly income target for retirement requires weighing several personal factors:
- Current income – Aim to replace 75-80% of your pre-retirement earnings. This provides a ballpark while reducing expenses.
- Lifestyle desires – Budget for the lifestyle you aim to maintain, including travel plans, hobbies, etc.
- Lifespan – Account for your family history and health conditions which may affect longevity.
- Healthcare costs – these are likely to rise as you age. Budget significantly more than current costs.
- Location – If you plan to relocate, research costs in desired areas. Regional differences can be significant.
- Dependents – Consider ongoing financial support needed for children/parents.
- Debt/assets – Include any outstanding debts due and assets that can help generate income.
- Taxes – Understand the tax implications of various income steams in retirement.
- Legacy wishes – If you plan to leave an inheritance, allow for this in your estimates.
- Risk tolerance – A more aggressive investor can withdraw more income annually from savings.
- Inflation – Ensure your income target factors in inflation over your estimated lifespan.
Forecasting retirement income isn’t straightforward. Changing circumstances over an unpredictable timeframe create complexity. A financial advisor can be invaluable in helping analyze factors and establish an income goal tailored to your situation. Revisit this target annually to keep it aligned with your evolving needs.
What Is a Good Monthly Retirement Income For a Single Person?
Determining an appropriate monthly income target for a single person in retirement requires understanding both sources of income and projected expenses.
According to recent data, the average Social Security benefit in 2023 is $1,827 per month for all recipients. This represents a significant increase from the 2022 average of $1,681.
While Social Security provides a valuable source of income, it may not be sufficient on its own to cover all living expenses in retirement. For single adults, experts often recommend aiming to replace 70-80% of pre-retirement earnings through Social Security, savings, investments and other income streams.
As we explore calculating an appropriate monthly retirement income target for singles, it’s important to consider all your personal sources of funds in addition to Social Security benefits. Factoring in your full financial picture will help determine a realistic income goal tailored to your needs and retirement lifestyle.
Factor in income from any pensions or annuities as well. Be sure to calculate the after-tax value of these streams.
Next, build a detailed budget that realistically estimates recurring costs. Include increased healthcare expenses, plus any large one-time outlays anticipated. If you plan to travel extensively or move to a new region, factor these desires into your budget. Leaving a legacy or supporting other family members also impacts expenses.
Compare your essential expenses to guaranteed income channels. The gap is what must be covered by your retirement funds (pension plan, 401k, IRA, etc) and investments. The 4% rule provides a guideline, where you initially withdraw 4% of total retirement savings annually. But the precise sustainable withdrawal rate for your retirement portfolio depends on asset allocation, time horizon and risk tolerance.
If your expenses exceed your income, you have several options to close the gap. Delaying Social Security claims until age 70 boosts monthly payments. Part-time work provides added funds. Relocating to a lower-cost region can significantly reduce living expenses. Meeting with a financial advisor brings expertise to create a plan tailored to your individual financial situation.
What Is The Average Monthly Retirement Income For Retirees?
When planning for retirement, looking at typical monthly income for retirees can provide a helpful benchmark. However, averages only tell part of the story, as retirement income varies substantially based on individual circumstances.
According to the Social Security Administration, the average monthly Social Security benefit is around $1,657. But your specific benefit depends on your earnings history and when you claim. The maximum monthly Social Security payout for someone claiming at full retirement age (70) in 2023 is $3,538.
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Research from the Bureau of Labor Statistics shows the average retiree household spends around $3,800 per month. But expenses in retirement can range widely based on factors like age, health, longevity, and lifestyle. Location also impacts costs significantly, with state-by-state differences.
While the average retirement income may be a useful starting point, calculating your own target should involve estimating both earning sources like Social Security and pensions, as well as potential retirement expenses based on your plans. Coordinating withdrawals from savings to supplement fixed income is crucial.
Average Income
When looking at average retirement income statistics, there are some discrepancies across different data sources that are important to note:
- According to a 2022 U.S. Census Bureau report, the common monthly retirement income adjusted for inflation in 2023 is $4,381.25.
- However, another Census Bureau statistic cites the average annual income for adults age 65+ as $75,254, which equates to $6,271 per month.
- There is an inconsistency between these two Census Bureau averages. The monthly figure is substantially lower.
- This discrepancy may be because the $75,254 annual figure includes all income sources, while the monthly figure may only look at certain income streams.
- The Census Bureau annual average is also much higher than the reported median income of $47,620 for adults age 65 and older.
- The median is often lower than the mean (average) since high outliers increase the average but not the true middle value.
- Social Security estimates show an regular monthly benefit of $1,657 – $1,681 in 2023.
- But Social Security is just one income source and may underestimate total retirement income.
The key is to recognize that averages have limitations. Focusing on the median income and your own specific situation rather than nationwide averages will give the most accurate view. Use averaged as loose guideposts but customize based on your details.
What is the difference between the average and median retirement income in the US
When looking at national statistics for retirement income, there are two main measures used – average and median income. Understanding the difference between these terms is important:
- Average income – The mean retirement income is calculated by adding up all income amounts across retiree households and dividing the total by the number of households. High outliers can skew the average upward.
- Median income – The median represents the middle value, with half of retirees having income above that amount and half below. It gives the best sense of the “typical” retiree.
For example, the average retirement income is currently around $75,000 annually. But the median is only $47,620 according to Census Bureau data. This indicates half of retirees actually live on less than $47,620 per year.
The median is lower because average (mean) income is inflated by small numbers of wealthy retirees with very high incomes. The median excludes outliers, making it better representative of most retirees.
When planning your own post-work income needs, looking at the median income rather than average income will give you a more accurate sense of standard retirement lifestyles and expenses. Use national medians as guideposts, but computing your own target based on your personal situation.
How does the average retirement income vary by state
Average retirement income varies significantly by state, largely driven by differences in living costs. Examining averages by state provides insights into how location impacts retirement finances:
- Hawaii has the highest average retirement income at $119,004 annually. High cost of living is the key factor.
- Mississippi has the lowest average at $53,710. Much lower living expenses allow retirees to get by on less.
- In high-cost states like California, New York and Massachusetts, averages range from $90-100K.
- Low-cost states like Kansas, Tennessee and Alabama average $50-60K in retirement income.
- Within states, urban areas usually have higher averages than rural areas due to higher costs.
- State tax policies can affect income needs. Low-tax states may offer savings.
These state-by-state differences demonstrate why national average income isn’t necessarily a good benchmark. Your specific location – and whether you’re willing to relocate – should inform your income needs. Cost of living calculation aids can provide location-adjusted estimates.
Income From Your Retirement Savings & Retirement Accounts
When it comes to determining the income you will need from your retirement savings and retirement accounts, there are several factors to consider:
- Income replacement rate: A good starting point is to aim for a replacement rate of 75% of your pre-retirement income [7]. This means having a post-retirement income of 75% of what you were earning before retirement.
- Living expenses: Consider your current living expenses and how they may change during retirement. According to the Bureau of Labor Statistic, the typical single person in their late 60s or early 70s has annual expenditures of $25,825, equating to $2,152 monthly
- Retirement savings: The amount of retirement savings impacts monthly retirement income. According to a T. Rowe Price report, a good rule of thumb is to save 8% of gross household income during working years.
- Social Security benefits: These can be a significant income source. The average monthly benefit for retired workers is ~$1,680.
- Investment options: Consider options that can generate additional income like dividend stocks, bonds, annuities, and real estate investment trusts.
- Delay retirement: This can increase Social Security benefits and savings time. Delaying benefits increases them by about 8% per year.
Overall, determining a good monthly retirement income depends on various personal factors. It’s important to consider your specific circumstances and consult a financial advisor to create a personalized retirement plan.
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Boost Your Retirement Income: Good Sources For Retirement Income
While Social Security and traditional pensions form a foundation for retirement income, today’s retirees often need additional income streams. Here are some strategies to supplement your retirement income:
- Delay Social Security claims – Waiting until age 70 increases monthly benefits by up to 32%.
- Work part-time – Earn extra income from temp, seasonal or side jobs.
- Move to lower-cost area – Relocating can significantly reduce living expenses.
- Downsize home – Selling and downsizing frees home equity.
- Invest strategically – Stocks that pay dividends can provide steady income.
- Purchase annuities – These products generate guaranteed lifetime income.
- Withdraw judiciously – Follow the 4% rule or work with an advisor.
- Leverage home equity – A reverse mortgage converts home equity to income.
- Rent rooms – Renting a room or carriage house creates rental income.
- Lower expenses – Reducing costs frees up more of your fixed income.
- Consider longevity insurance – An annuity starting advanced age can hedge risk.
Boosting income takes research and planning. A financial advisor can assess options and integrate appropriate strategies into a cohesive plan tailored to your situation. The key is creating sufficient guaranteed income to support your retirement lifestyle.
How To Lower Retirement Expenses?
Living expenses are a key driver of how much income you need in retirement. Trimming costs can allow you to thrive on less:
- Housing – Downsize to a smaller home or condo. Move to a lower-cost town or state.
- Transportation – Downsize to one car. Use public transit. Walk and bike more.
- Food – Eat out less. Meal plan. Shop sales and generic brands.
- Entertainment – Limit expensive cable packages. Find free activities.
- Travel – Be selective with destinations. Use points. Take longer trips.
- Gifting – Set limits for children/grandkids. Focus on time over money.
- Shopping – Develop a minimalist mindset. Avoid impulse purchases.
- Healthcare – Enroll in Medicare. Use preventative care. Seek generic drugs.
- Insurance – Raise deductibles. Drop unnecessary coverage.
- Debt – Pay off credit cards and loans. Avoid new debt.
- Taxes – Choose retirement-friendly states/cities.
Part-time work and relocating to a LCOL area can dramatically cut costs. But also look to trim expenses in your current living situation. Sticking to a frugal budget takes discipline but pays dividends in retirement.
Plan For Retirement Calculator: Will I have Enough For Retirement?
Doing The Math For Your Retirement Income Needs: The Power of Planning Estimating your income needs in retirement involves analyzing your anticipated expenses, factoring in inflation, and assessing potential income sources.
The Importance of Pre-Retirement Income Analysis: Understanding your pre-retirement earnings is the starting point for estimating your retirement needs. A common guideline suggests aiming for 70-80% of your pre-retirement compensation in retirement. This calculation takes into account reduced work-related expenses and taxes.
Understanding Retirement Expenses: Retirement doesn’t signify the end of expenses but a change in their nature. While work-related costs may decrease, healthcare, leisure activities, and travel expenses might rise. Crafting a detailed budget that encompasses all potential expenses is essential for accurate retirement income planning.
Utilizing Retirement Income Calculators: Retirement income estimation tools provide a useful starting point for estimating your retirement income needed. These online tools factor in variables like current savings, expected Social Security benefits, and projected expenses to offer an estimate. While these calculators provide insights, it’s advisable to consult financial professionals for a comprehensive analysis.
What Is Your Retirement Plan?
Crafting a retirement plan requires assessing your current finances, estimating future costs and income needs, and building an integrated strategy to bridge the gap:
- Catalog all current income sources and assets like Social Security, pensions, 401(k)s, IRAs, and taxable accounts. This forms the foundation.
- Project retirement income from guaranteed sources like Social Security and any pensions. Claiming strategies can boost Social Security income.
- Create a detailed retirement budget including one-time costs. Healthcare, travel, home repairs and other variable expenses must be estimated.
- Model different scenarios for withdrawing retirement assets to generate supplemental income. The 4% rule provides a starting point.
- Identify ways to expand income like renting a room, moving to a LCOL area, or working part-time. Every bit helps.
- Develop a tax-efficient withdrawal strategy to minimize unnecessary taxation.
- Set an investment allocation using your timeline and risk tolerance. Strive for growth while managing risk.
- Build in contingency plans to address potential curveballs like market downturns or living past 100.
The key is coordinating all income sources into a cohesive, customized plan focused on funding the retirement lifestyle you envision. Meeting with a financial advisor brings expertise and accountability to create a plan with greater certainty of success.
Retirement Savings
- Retirement funds are a crucial component of your retirement plan.
- They can come from various sources, including employer-sponsored retirement accounts like 401(k)s, individual retirement accounts (IRAs), and personal savings.
- The amount of your retirement nest egg impacts monthly retirement income.
- It’s important to start saving for retirement early to take advantage of compounding growth.
- The general rule is to save 8% of gross household income during working years.
Retirement Income You Need
- The income needed depends on desired lifestyle and expenses.
- A common benchmark is to aim for a 75% replacement rate of pre-retirement income.
- The 75% rate accounts for a 5% spending decrease and 8% savings rate.
- Understanding income needed beyond Social Security can help estimate target savings.
- Sources like pensions, annuities, retirement accounts, part-time work, and home equity can contribute.
Retirement planning is personalized. Consult a financial advisor to create a plan tailored to your specific needs.
What Are Some Reasonable Assumptions When Planning For Retirement?
Making reasonable assumptions is crucial when retirement planning:
- Life Expectancy – Assume at least age 90, especially for married couples. Plan for longer if you have longevity genes.
- Healthcare – Budget significantly more than current costs, potentially $300,000+ in retirement per couple.
- Protect Against Inflation – Estimate at least a 3% annual inflation minimum. Higher rates increase lifetime costs drastically.
- Investment Returns – Target approximately 6% average annual return overall, with some lower and higher years.
- Social Security – Assume benefits start between ages 67-70 for maximized payments. Do not rely solely on it.
- Pensions – If applicable, estimate payments conservatively given potential plan changes.
- Retirement Age – Earlier retirement such as at age 62 means more required income years and less time to save. Have adequate assets.
Building in conservative assumptions creates wiggle room for upside surprises. Discuss assumptions with your advisor and stress test annually to keep your plan aligned.
Next Steps
The Human Factor: Tailoring Retirement Income to Your Needs Retirement income planning isn’t solely about numbers; it’s about aligning your financial strategy with your personal aspirations and changing circumstances.
Lifestyle Considerations and Retirement Goals: Your retirement income should align with your desired lifestyle and goals. Consider factors such as travel, hobbies, and leisure activities that bring you joy. Integrating these aspirations into your retirement income strategy ensures that you can truly enjoy your post-work years.
Factors Affecting How Much Income You Need: Health, Travel, and Hobbies: As you age, health-related expenses often increase. It’s crucial to account for potential medical costs when estimating your retirement income needed. Additionally, if you plan to travel extensively or take up new hobbies, ensure that your income strategy accommodates these pursuits.
Adapting Your Income Stream Over Time: Retirement isn’t static; it’s an evolving phase. As you progress through retirement, your money needs and expenses may change. Regularly reassess your income strategy to ensure that it aligns with your current circumstances and goals.
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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.