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The Average Cost of Retirement
The Average Cost of Retirement
Many people wonder exactly how much it will cost for them to retire comfortably, and whether they’ll have enough money to do it. That can be a tough question to answer — but it’s an important one to get right. Learning about current retirees’ finances can be a helpful starting point when gauging your own retirement goals.
According to the Data …
The U.S. Census Bureau provides information regarding the typical retirement income of Americans. They do this by reporting two types of statistics — mean income and median income.
Mean income is determined by adding all the annual incomes of retirees and dividing by the total number of retirees. The resulting number is the arithmetic average. However, this value can be greatly influenced by extremely high- or low-income numbers.
The median is calculated by taking the middle value of all annual incomes of retirees when the values are arranged from low to high. Because a median isn’t influenced by those with very high or low incomes, it’s often regarded as more representative. In 2021, the median annual income of American retirees over the age of 65 was $47,357 — whereas the mean was $73,288.
Census Bureau data also reflects a downward trend in retirement income as retirees age.
From ages 65 to 69, the median household income was $60,324; from ages 70 to 74, it shrinks to $53,327. And among retirees over 75, the median income was $37,335. This is in part because as retirees age, they are less likely to be earning any income and are typically spending down savings and investments.
The census also breaks down data by state. Typical retirement income varies a great deal in terms of where retirees live. The highest reported income is in the District of Columbia ($43,601), and the lowest is found among Indiana residents ($20,521). Cost of living is a primary driver of retirement budget calculations including:
- Your lifestyle during retirement (travel, eating out).
- Housing costs.
- Health care expenses.
- The age you elect to start receiving Social Security benefits.
- Economic conditions, including inflation at the time you retire.
- Financial contributions from your spouse.
Where to Start?
One often-cited rule of thumb when it comes to retirement income planning is that many people are expected to need approximately 80% of their pre-retirement income to retire comfortably. That means if you made $100,000 per year pre-retirement, you’d need about $80,000 post-retirement. Thinking about why you’ll need less is that your income tax obligations are anticipated to be lower, and you won’t have to pay for many job-related expenses. However, it’s important to realize that other costs, especially those related to medical needs, can increase significantly during retirement.
The Number That Matters Most
Retirement planning is ultimately a very personal decision-making process that depends on your unique situation and needs. That’s why things like the 80% rule are best regarded as a starting point and not a hard and fast rule. Because so many factors go into retirement planning — projected taxes, inflation, cost-of-living increases and much more — it can be useful to seek the advice of a qualified financial professional to assist you. In the end, it’s not the average retirement that matters most — it’s your own.