Average Retirement Income

More than half of Americans have no retirement savings at all, and those who do often fall short of savings targets by age and income. Planning for retirement can seem too far away to prioritize, especially in your 20s and 30s, but the earlier you can start, the more you'll benefit from compounding investments. An annual $1,000 saved for 30 years with a 6.5% average annual return will be worth over $6,500 while saving a monthly $500 for the same period will be worth over half a million dollars. Consistent contributions add up over time. 

Below, you'll find information on 401(k) savings by the average American household and guidance to help figure out how much income you’ll have to supplement to have enough monthly retirement income.

How Much Income Do Retirees Have? 

As a general rule, you’ll need about 70% to 80% of your pre-retirement income to maintain a similar standard of living in retirement and cover your expenses. This amount will generally cover the cost of healthcare, housing and other necessary expenses while also allowing a little freedom as well.

Your income in retirement will probably come from two or three sources: Social Security benefits, retirement savings and for a small percentage of Americans, a pension plan or military retirement benefit.

1. Social Security Benefits

According to the Social Security Administration (SSA), more than 85% of people 65 and older receive Social Security benefits. Of that, 40% depend on Social Security for most of their retirement income.

However, Social Security was never meant to be a primary source of retirement income; it is supposed to be supplemental. Check out this table that breaks down the average retirement income from Social Security.

Use the SSA’s Social Security Retirement Estimator to project how much of your retirement income will come from Social Security.

To be eligible for Social Security Benefits, you must have worked and paid into the system for at least 40 quarters or 10 years. 

How to Calculate Your Social Security Income

Your Social Security income is calculated using two factors:

• Age: When you choose to retire, it affects how much you receive in Social Security benefits. You can collect Social Security as early as 62 or as late as 70. However, the earlier you start collecting, the lower the monthly amount you receive in benefits throughout the time you collect. According to the SSA website, if you turn 62 in 2023 and start collecting your Social Security benefits, your benefits would be about 30% lower than if you waited until full retirement age (67 years).
• Earnings: The SSA averages your monthly earnings over the 35 years you earned the most. Higher lifetime earnings translate into higher Social Security benefits. If you’re married, the amount each spouse receives depends on their work history. 

 For 2023, the maximum monthly benefit is:

• $4,555 if you file at age 70
• $3,627 if you file at full retirement age (currently 66)
• $2,572 if you file at age 62

If Social Security is your only source of retirement income, then you probably won’t pay income taxes in retirement. If you have additional sources of income, then up to 85% of your Social Security income may be subject to taxes. 

2. Retirement Savings

Most retirees don’t have pension plans and Social Security income isn’t enough to maintain a pre-retirement standard of living. So, for most retirees, the primary source of income comes from retirement accounts such as 401(k)s and Individual Retirement Accounts (IRAs).

 401(k)

A 401(k) is a defined contribution plan. A defined contribution plan is an employer-sponsored retirement savings plan that allows employees to save and invest some of their paychecks before taxes are taken out.

Employers can either match employees’ contributions or contribute partially. Contributions are invested, and the retirement benefits an employee has access to for income reflect investment gains or losses.

Unlike a pension plan, a defined contribution plan like a 401(k) doesn’t guarantee payment in retirement. There are limits to how much you can contribute to a 401(k).

In 2023, 401(k) contribution limits are $22,500 per year. For 2024, that will increase to $23,000. 

IRA

Traditional IRAs are tax-deferred retirement plans. With a Traditional IRA, you contribute pre-tax money, allowing for tax-deferred growth, then pay taxes years later when you withdraw, ideally at a lower tax rate than you are currently paying. With a Roth IRA, you contribute after-tax dollars, but they grow tax-free. 

IRAs are set up by individuals, and only account owners can make contributions. Traditional IRAs can be combined with or supplement an employer-sponsored 401(k) or simple IRA, or Roth IRA. Like a 401(k), IRA accounts have annual contribution limits set by the IRS. The IRS-set contribution limits for a traditional IRA or Roth IRA are $6,500 per year in 2023 ($7,500 if you are over 50).

Simple IRAs are employer-provided retirement accounts designed for employees without a traditional 401(k). Both employers and employees can make contributions to simple IRA accounts. In 2023, simple IRA contribution limits are $15,500 annually ($19,000 with catch-up contributions if you are over 50). 

3. Pension Plans

A pension is a defined-benefit plan. A defined-benefit plan is a retirement plan funded by your employer, though in some cases, employees may be required to contribute to the plan as well.

Typically, a pension amount is determined by salary, length of service and years of enrollment. Pension plans guarantee retirees a certain monthly income regardless of how their investments performed.

Pension plans are becoming a less common source of retirement income. As of 2022, only about 15% of private companies have a pension plan, and around 33% percent of retirees have a pension plan. Annual pension benefits range from about a median of $11,040 per year to about $26,380 for federal government pensions.

How Much Income Do Average Savings Produce?

Typically, you can plan to withdraw around 4% of your retirement savings each year. If you have $100,000 in retirement savings and assume that you have a 4% annual return, that would provide around $4,000 in retirement income your first year of retirement or about $333 per month. Alternatively, if you have an average annual return of 6% to 7% and withdraw 4% a year, you'll be able to maintain the account balance while accounting for inflation.

How Much Savings Do Retirees Have? 

Despite increases in retirement savings contributions, most households do not have sufficient retirement savings. According to the National Institute on Retirement Security, based on 401(k) and IRA account balances, 92% of working households fall short of retirement savings targets for their age and income. 

401(k) accounts are the most common retirement savings account that most retirees rely on for retirement income. Below is a table breaking down the average 401(k) account balance by age group in 2023.

How to Increase Your Retirement Income and Savings

There are several actions you can take now to increase your savings and income when you retire.

Increase Your Social Security Income

You can boost your retirement income by focusing on securing higher Social Security benefits. Here are a few suggestions:

• Postpone collecting benefits: The longer you wait, the more you will collect per month. If you wait until age 70, you can collect almost $300 extra each month. However, there is no benefit for waiting after 70 to collect benefits.
• Higher-earning spouse defers: If you are married, the higher-earning spouse should defer the start of benefits for as long as possible so that you can maximize your monthly Social Security benefits as a couple.

Increase Your Retirement Savings Income

• Maximize your account savings contributions: Take advantage of pretax contributions and max out your account contributions.
• Have multiple retirement savings accounts: Maximize your benefits by having multiple pre-tax and tax-free retirement savings accounts.
• Maximize catch-up contributions: If you’re over 50, take advantage of the extra contributions you can add to your retirement savings each year.
• Eliminate or reduce unnecessary expenses: Use a spreadsheet or app to help you keep track of your expenses and find ways to eliminate or reduce discretionary expenses.

Find an Adviser

Are You Ready for Retirement? 

Retiring is not as simple as packing up your stuff and walking off into the sunset of your later years. It takes serious planning and foresight. You need to consider your anticipated expenses, income and length of retirement to know how much to budget and save for.

Talk to a financial adviser about ways that you can maximize your retirement savings leading up until your retirement, as well as ways to maximize your income during retirement so that you feel secure in your post-working years.

Frequently Asked Questions