The average income in retirement and what's right for you

Once upon a time, people could predict their retirement income with confidence. Defined-benefit pensions were common, and your retirement income was what your pension said it would be. Today, with pension plans going the way of the corded phone, Americans aren’t as clear on what their monthly paycheck will look like in retirement.

But your retirement vision should be clear. You and your financial professional can develop an income projection based on where and how you want to live, your health status, family circumstances and more. As a reality check, you might also want to know the average income for retirees and whether your projected income is in line with theirs. Knowing the average income for people 65 and over can give you a reference point for your own retirement income goal.
 

What is the average income in retirement?

According to the U.S. Census Bureau, the median annual income for individuals 65 and older is $54,710.¹ That’s good news for the two-thirds of retirees who report separately that they spend $40,000 per year or less.²

But as retirees continue to draw down on savings and investments over time, their incomes generally decline. For those 65-74, median annual income was $55,747. But for those who are older than that, median income declined to $38,239.³
 

The average retirement income has risen

Average income in retirement has been rising over time. The factors driving that change include higher earnings during working years. One contributor to those higher earnings is the increased participation of women in higher-paying jobs and consequent narrowing of the wage gap between men and women.⁴

Additional income streams are another factor, as retirees may adopt a combination of stocks, bonds, real estate, and new investment tools and strategies. Some retirees even take on retirement jobs. And Social Security benefits, which are adjusted for inflation, have also risen in recent years.
 

What is a “good” monthly retirement income?

Financial professionals often advise clients to plan for a retirement income that’s about 70-80% of their pre-retirement income. That could come to $50,000 to $70,000 for individuals, and $80,000 per year for couples.⁵ Why just 70-80%? That’s because retirees may no longer pay, or pay as much, for commuting, mortgages, children’s education and other expenses.

That’s the rule of thumb, and a good benchmark to start from—but how well does it apply to you? There are several reasons you might set your income target higher or lower than this, including:

• Location. Just as “location” affects the price of your house, location can affect the price of your retirement. Want to retire to a city like New York City or San Francisco? The cost of living there is higher than in most other parts of the country. Taxes also vary greatly by state. See our guide on the best and worst states to retire in.
• Health. You’re likely to pay for some medical expenses in retirement, even if you qualify for Medicare. A big cost that Medicare doesn’t cover is long-term care. If you have specific medical issues or a family history of such issues that could hit as you get older, you might want to account for this in your financial planning.
• Debt. Imagine enjoying your golden years without the stress of a mortgage payment. How much easier would your life be? That’s why financial professionals recommend paying off your house during your working years. And it’s crucial to kill that credit card debt before you retire, otherwise those payments could take valuable chunks out of your fixed income.  
• Longevity. Because people live longer than they used to, they have to plan for longer retirements, and that puts more stress on the retirement income they need to generate. While this is an issue for many retirees, it’s a particular issue for women, who typically live longer than men.
• Lifestyle. There are expenses that you have to incur, such as taxes, energy and grocery bills. And then there are the expenses that you choose to incur, such as vacations and other travel, second homes, supporting children or grandchildren, hobbies, activities and philanthropy. Some combination of these expenses adds up to the retirement lifestyle you want. These can be your most important expenses, because they can help make your retirement worthwhile.
   

Where will your retirement income come from?

Once you have a good sense of how much retirement income you’ll need, you need to consider where that money can come from. For most retirees, it’s a combination of sources, including:

• Social Security. The average monthly benefit for retirees is now $1,976 per month. The average monthly payment to couples who each receive benefits is $3,089.⁶ Those benefits represent about 31%, on average, of the total income for people over 65.⁷
• Retirement accounts. Two-thirds of retirees get income from retirement accounts such as 401(k)s, IRAs and other investments. The median amount of that income was $1,730 per year in 2022.⁸
• Personal savings and investments. Retirees who had good savings habits during their working years may have additional income from taxable accounts such as personal savings and investments.
• Part-time work. About 23% of retirees continue to work part-time, earning roughly another $10,000 in median total annual income.⁹ Some need to work to make up a gap between retirement income and expenses. Others turn hobbies into businesses or take a job to get out of the house and socialize.
   

Planning for an income gap

Your financial plan should include a retirement income goal and ways to achieve it. If you don’t have this type of plan, it’s time to get started.

Once you have looked at your numbers, you might find that you’re coming up short. Maybe you’re just a few years away from retirement and you’re not hitting your goal, or a volatile market is threatening the portfolio you have. This is where an annuity could help you bridge that gap and help you prepare for retirement. A financial professional can help you decide whether including annuity income in your plan is right for you.