Ready to retire? Average pension income in 2023 (2024)

Key learning points

The difference between the average U.S. retirement income and the average U.S. retirement income is both significant and important. The average combines the highest and lowest incomes, resulting in €83,085. The median is the exact middle of the incomes. That means half of Americans age 65 and older have incomes of less than $52,575 a year, while half have more.

The amount ofretirement incomeyou need a flexible and moving target. Your assets, expenses, health and plans will all play a role in how much income you needretirement. EvenWhere do you livemakes a difference because some states and cities have a higher cost of living than others.

When it comes to retirement income, “good” is completely relative. An amount that is more than sufficient for one household may be insufficient for another. Your health, location, assets and your wishes combine to provide a retirement income that is good for you.

As a starting point, AARP suggests that you want approximately80%of your previous income when you retire. For example, if your income before retirement was $100,000, you will have approximately $80,000 when you retire.

You do not have to pay the same amountSocial Securitylike when you were working and you no longer added to yourspension savingsin the same way. Any work-related expenses you may have incurred regularly will also be eliminated.

However, this is only a general guideline. Depending on what you want your retirement to look like or what you hope to do, you may be able to adjust this percentage up or down. Drawing up a retirement budget is a good way to keep yourself on track.

The Employee Benefit Research Institute (EBRI) is a nonpartisan research organization committed to advancing fair public policy. The institute continuously conducts research intoeconomic healthand the well-being of retirees.

In 2022,the institute's researchreported that half of respondents spend less than $2,000 per month. A third spent $2,000-$3,999, and 16% spent $4,000-$6,999. Three percent of respondents spent more than $7,000 every month.

The majority of their expenditure went to housing: almost a third per category. The second largest expenditure item was food. Food prices can rise dramatically during periods of inflation.

Another important expenditure category was healthcare. Although housing costs generally decrease with age, health care costs often increase.

How you receive your income depends on the choices you made when setting up your pension scheme long before you retired. Your retirement income can come from a number of different sources. In fact, having multiple streams of income in retirement is an important part of maintaining financial security.

Social Security is the most common form of retirement income. By 2023, the Social Security Administration (SSA) expects almost67 millionAmericans to receiveSocial advantagesevery month, of which 48.6 million are retired workers.

Social Security is not intended to be your sole source of income after retirement. Fortunately, that is not the only option. According toFederal Reserve79% of retirees have one or more private sources of income.

Being retired doesn't always mean you stop working for good. Employment is the second largest income provider among households aged 65, contributing 19.3% of total income. If you receive Social Security, keep in mind that work may affect your benefits depending on your situationfull retirement age.

Economic uncertainty is not the only reason to returnworking after retirement: Many retirees choose to start a business, pursue work that interests them, or add intellectual or social interests to their daily lives. In fact, 27% of retired adults who continue to work in some capacity consider themselves fully retired.

Social Security is designed to support financial security and stability, rather than being your primary source of income. That said, Social Security makes up the largest portion of retirement income, about 30%. In December 2022, almost 90% of people aged 65 and over received social security benefits.

Both lower and higher income households receive social security, although households doabove and below 10%of income earners receive less than the remaining 80%, according to a US report. Census Bureau as of February 2022. For households aged 65 and over, social security accounts for just over half of total income.

57 percent of retirees also have income from thispensioner, receive benefits from their former employer. When retiring, employees are sometimes given the choice to withdraw their pension in one go, but more often you receive a fixed amountannuity. The amount of your benefit depends on how long you have worked for the company, the salary you earn and your age.

Immediatelydefined performancepension, you receive a fixed monthly pension income from your employer. This is a more traditional pension scheme, paid for by your employer.

Immediatelydefined contributionretirement, you contribute a certain amount of your pre-tax income to an account dedicated to you, and these funds grow tax-free. Sometimes your employer also contributes or even matches your contributions.401(k)sis an example of defined contribution pensions.

Benefit-based pensions are disappearing from the employment landscape. But premium pensions are going up. By 2022,62%of civilian workers had access to a defined contribution plan through work, according to a survey by Employee Benefits of the US. Labor Statistics Bureau.

Individual investments can also provide other income streams during your retirement.IRA'sInRoth IRA'sare individual accounts that you can contribute to on your own schedule and can include stocks, bonds, and mutual funds.

IRAs give you a tax deduction when you contribute, but you pay taxes on the money you withdraw. There is no tax deferral if you contribute to a Roth IRA, but you don't pay taxes on the money you withdraw.

Other personal income streams may include interest or dividends on investments, other annuities, or income from real estate as a renter or even Airbnb.

With 80% of your salary as a basic guideline, the retirement income you need will depend on several factors, all of which combine to determine the type of lifestyle you want to have in retirement.

You need to take into account your expected daily expenses, yourExpected life expectancyand potential healthcare costs and the cost of living where you are located.

Your retirement income is a moving target. As you save for retirement, your plans may grow or change, and so can your income needs. Use oursretirement planning calculatorto take a closer look at your retirement savings and see if you are currently on the right track.

Where you live affects the retirement income you need. Some cities and states have higher daily costs of living than others. Housing and energy costs, food and gas prices and life expectancy all play a role. Urban areas are likely to offer more options when it comes to activities and entertainment, while suburbs and rural areas will often be cheaper.

The table below provides information on the percentage of households age 65 and older receiving retirement income, sorted by state. Pension income includes income from pensions, annuities and social security contributions. RetireGuide compiled the table based on data collected from the 2021 American Community Survey (ACS) conducted by the US. Census Bureau.

Pension income by state

The way you use your retirement savings also affects your income.

The 4% rule is one approach. In 1994, William Bengen recommended that you should withdraw 4% of your savings in the first year of retirement and then continue to withdraw this amount, indexed for inflation, each year. The financial analytics company Morningstar recently published arapportconcluded that 3.8% was a more realistic option.

The bucket method is another method you can use when planning and withdrawing your retirement savings. With this strategy, you divide your retirement investments into three parts: short-term, medium-term and long-term savings. It may help to seek advice from a trusted financial advisor to benefit from this strategy.

Finally, you can use a fixed percentage or fixed dollar withdrawal method. As the name suggests, with this method you withdraw the same dollar amount or percentage every time. Although this strategy does not take inflation into account, it provides a very stable and reliable income.

If you're concerned that you haven't saved enough, consider thispurchasing an annuity. Annuities available from insurance companies are designed to reduce the risk of using your retirement savings. Offers both a steady income andtax deferredgrowth, you can purchase annuities in installments or in one go.