Retirement means leaving behind the security of a regular paycheck and instead relying on savings or other sources of income to pay the bills. That can be a scary proposition for some.
“I tell people, why don’t you do a trial run on it?” said Barbara A. Pietrangelo, a certified financial planner at Prudential in Ada, Michigan, in an email. She suggests pre-retirees determine how much income they can expect in retirement and try to live on that amount before exiting the workforce.
But knowing how much income to expect in retirement is different than knowing whether that is a good amount.
“Retirement is a dynamic phase of someone’s life,” said Rich Ramassini, a Pittsburgh-based certified financial planner and chief sales and strategy officer for PNC Investments, in an email. An individual’s retirement expenses can fluctuate depending on someone’s interests or health at any given time.
Working with a financial professional can be the best way to get personalized guidance on how much you’ll need in retirement, but for those early in the planning stages, seeing how much other retirees make and spend can be a helpful starting point.
[READ: Essential Sources of Retirement Income]
How Much People Spend in Retirement
Conventional wisdom has long held that expenses go down in retirement as people no longer commute to a workplace or pay for employment-related expenses. As a result, an oft-stated rule of thumb suggests workers can base their retirement on a percentage of their current income.
“Seventy to 80% of pre-retirement income is good to shoot for,” said Ben Bakkum, senior investment strategist with New York City financial firm Betterment, in an email.
But he adds that there are other variables to consider, such as inflation, market downturns and changes in spending patterns. “Some people travel more after retirement,” he added.
In 2022, U.S. households led by someone age 65 or older spent an average of $57,818, according to data from the Bureau of Labor Statistics. However, many retirees spend less than that. The BLS reports 2020 spending for those age 65 and older broke down into the following percentages:
| ANNUAL SPENDING | PERCENTAGE OF RETIREES |
| Less than $10,000 | 2.1% |
| $10,000-$19,999 | 18.2% |
| $20,000-$29,999 | 21.4% |
| $30,000-$39,999 | 18% |
| $40,000-$49,999 | 12.2% |
| $50,000-$74,999 | 15.9% |
| $75,000-$99,999 | 5.5% |
| $100,000 or more | 6.7% |
Average Monthly Retirement Income
Once you know how much you plan to spend in retirement, you can home in on a savings goal that will generate that amount of money. “For every $50,000 of income you need, you need a million bucks (in savings),” said Chuck Czajka, founder of Stuart, Florida-based financial firm Macro Money Concepts, in an email.
Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households:
— 65-74 years: $63,187 per year or $5,266 per month
— 75 and older: $47,928 per year or $3,994 per month
For some people, Social Security benefits might comprise a substantial portion of this income. As of January 2024, the average monthly retirement benefit for Social Security was $1,860, according to the Social Security Administration.
[See: 19 Part-Time Retirement Jobs That Pay Well]
Top Sources of Retirement Income
Retirement income can come from a variety of places. A 2023 report from the Federal Reserve System found the following percentages of retirees age 65 and older reported having these top sources in 2022:
— Social Security income: 92%
— Pension and retirement account income: 65%
— Interest, dividends or rental income: 47%
— Wages, salaries or self-employment income: 25%
— Cash transfers other than Social Security: 5%
“Social Security is still a pretty significant contributor to people’s retirements,” Ramassini noted. In fact, as of June 2023, Social Security payments account for about 30% of income among people older than age 65, according to the Social Security Administration. What’s more, 37% of men and 42% of women in this age group rely on Social Security benefits for more than half their income.
How Retirement Income Is Changing
Recent decades have seen a sea change in how retirement is funded. “This is the first generation that is retiring and is solely responsible for themselves,” Czajka said.
In the past, workers who remained with an employer long enough could count on receiving a pension in retirement. This benefit typically provided guaranteed payments for the remainder of a retiree’s life.
More than 80% of full-time workers in large establishments were covered by pension plans in 1981, according to the BLS. By 1997, that percentage had fallen to about half, and only 15% of workers had access to these retirement plans in 2022.
For many retirees, Social Security has served the same role as a private pension, providing reliable monthly payments. But now, “There’s lots of uncertainty around Social Security,” Bakkum said.
Without Congressional action, the trust funds that supplement benefits are projected to run dry in about a decade. At that point, Social Security is expected to be able to pay out only 77% of the retirement benefits owed.
How to Increase Retirement Income
Those who want to boost their retirement income have several options. These include continuing to work, delaying Social Security benefits or creating a guaranteed stream of income.
“For some people, honestly, a part-time job is not really a bad idea,” Pietrangelo said. It can provide income and social interaction, both of which can be vital for older Americans.
Working can also allow people to delay claiming their Social Security benefits. For every year a person waits to claim benefits past their full retirement age, they get an 8% boost in their benefits. However, this perk ends at age 70, so there is no reason to delay filing beyond that.
“A lot of retirees turn hobbies into businesses,” Czajka suggested as another way to generate income.
Those who want the security of regular payments can take a portion of their money and purchase an annuity. These financial products provide predictable payments for the life of the person insured by the annuity contract. A nice benefit of some newer annuities is that the balance can go to beneficiaries if someone passes away prematurely, Pietrangelo noted.
While knowing what others make and spend in retirement is helpful, your own retirement budget may differ. If you are unsure how much you’ll need, consult with a trusted professional to evaluate your situation and carefully weigh your options.
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What Is a Good Monthly Retirement Income? originally appeared on usnews.com
Update 02/21/24: This story was previously published at an earlier date and has been updated with new information.
