What is a good monthly retirement income?
This article takes you through how to work out how much you should aim to save and how to achieve your retirement savings goal.
Financial planning for retirement is one of the most important money decisions you’ll ever make. You’ll need to answer one very important question: “What is a good monthly retirement income?” to establish your retirement savings plan.
What is the average monthly retirement income?
Let’s begin by understanding the US’s current average monthly retirement income.
The United States Census Bureau’s latest retirement income data shows the average monthly retirement income by age bracket and the difference between the median and mean average monthly retirement income.
|Age||Median income per year||Mean income per year|
|Over 65 years old||$47,620||$75,254|
|Over 75 years old||$38,239||$61,547|
From this, we can calculate the average monthly retirement income in the US as below:
|Age||Median income per month||Mean income per month|
|Over 65 years old||$3,968||$6,271|
|Over 75 years old||$3,186||$5,129|
The data differentiates between median and mean averages because they are different ways of calculating the average, which can be useful in different ways.
Generally, the median is a better idea of most people’s average retirement income because the mean can be skewed by a small percentage of people with very high incomes.
The fact that there are (at least) two different ways to calculate the average monthly retirement income indicates how difficult it can be to determine a single average. The average retirement income varies hugely according to age, where you live and other factors, but these figures give us a useful reference to start from.
What is a good retirement income per month?
So, if that’s the average – what’s a “good” retirement income?
Working out how much money you’ll require to feel financially comfortable in your retirement can be very difficult. But by making this decision early on, you can plan for your retirement and make smart savings decisions to bring you peace of mind.
Most retirement experts will agree that a good monthly retirement income is as close to your pre-retirement income as possible.
Experts suggest that an average retirement income of at least 85 percent of the gross income you earned during your last year of working is a good standard to aim for. Some even suggest living on 90 percent of your previous income. However, this depends on your lifestyle and how you plan to spend your retirement.
A good monthly retirement income is thought to be in the region of 85 percent of your most recent previous income because you’ll no longer be saving 15 percent of your gross income toward retirement. Therefore, your budget and lifestyle shouldn’t have to change too dramatically.
How much retirement income will I need?
You need to know your outgoings to understand how much retirement income you’ll require. If you have a mortgage or rent that needs to be paid, as well as household bills and other essential items like groceries, you’ll need to make sure your average monthly retirement income covers these expenses.
You’ll also have to consider how your retirement might change those outgoings because this could affect the amount of retirement income you need.
For example, if you’re looking forward to some luxury in retirement, such as an expensive vacation you’ve always wanted to take, you might need a higher retirement income. On the other hand, if you’d like to downsize your property, you might be able to save some money on bills and could adjust more easily to a smaller income.
What are the common sources of monthly retirement income?
The four most common sources of monthly retirement income are:
Social Security retirement benefits are a very common source of monthly retirement income. In fact, the National Institute on Retirement Security found that 40 percent of Americans rely on Social Security as their only form of retirement income.
Retirement plans such as 401(k)s and 403(b)s are used by many employers to allow employees to make deposits into their plan from their paycheck and are subject to tax benefits to boost savings.
A common source of retirement income is savings in other accounts such as stocks, investments, bonds and individual retirement accounts.
Pensions are less common now, but pension plans are a common source of monthly retirement income for many professions, including the military and federal government.
How can I increase my monthly retirement income?
If you’re still some way off retirement or it’s around the corner, an expert financial advisor can help you increase your monthly retirement income with suggestions about where to invest your savings. Investing in long-term investment funds early on can boost your savings. If you’re unsure about where to find this expert advice, Unbiased can help. We will connect you with an SEC-regulated financial advisor perfectly suited to meet your needs. Simply answer our 5-minute survey, and we’ll cover the rest.
How you withdraw your retirement funds can also help maximize your savings.
If you’d like to make your monthly retirement income stretch further, you’ll have to look at your budget and may need to make some lifestyle adjustments. That might mean spending less on entertainment, considering downsizing to a smaller home, or even moving to a state with more lenient retirement taxes.
Another way to increase your income is to remain employed as long as possible. If you wait to access your Social Security benefit until your full retirement age – between 66 and 67, depending on your birth date – you stand to gain more in benefits.
And don’t forget: if you can, you could always return to work by picking up a part-time job.
The bottom line
A “good” monthly retirement income will differ for different people and can be influenced by several factors.
The best way to ensure your savings are on track for retirement and you’re saving towards living comfortably in your later years is to work with a financial advisor to review your budget and financial planning goals. Find an expert today with Unbiased.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.