Average Retirement Income

What is the average retirement income that you will need?

Of course, the amount will be different for everyone. It all depends on your expected expenses and the lifestyle you desire.

Financial Advisers

Many financial advisers recommend that you will need 70% to 80% of your pre-retirement income to maintain your current lifestyle.

However, your income amount can actually be considerably lower, if you are planning to pay off your home mortgage, automobile(s), credit cards, and any other pre-retirement debt. Also, children living at home or children that you are still supporting financially is another expense you (hopefully) won't have during your retirement years.

How Much Money Do You Need

So, how do you figure out the average retirement income needed to retire on?

  • First - Determine how much you spend now. Pull out your last year's federal tax return. Subtract any money you put into additional savings or gave away. Don't worry about any money that you contributed to a tax-deferred retirement plan. It will already have been subtracted. This is the current annual amount that you are spending.
  • Second - Subtract any expenses that you won't have by the time you retire. Add up any expenses you are planning to eliminate by the time you retire. For example, your mortgage and credit card payments. Subtract this total from your current annual expenses. This is the amount that was found in the first step.
  • Now - Add up any new post-retirement expenses that you expect to have. Some examples of post-retirement expenses are: health care expenses, travel expenses, etc. Add this total to the amount you got after subtracting step two from step one.

This should give you a good idea of the average retirement income you will need.

Where Will You Get The Money

There are three traditional sources of income:

  • Social Security – You can estimate this amount by reviewing your Social Security statement.
  • Pensions and annuities – Your plan provider or administrator can assist you with these amounts.
  • Periodic Withdrawals From Savings – Many retirees use the safe withdrawal system where they withdraw 4% to 5% from their account. Hopefully, this is less than what the account is earning annually in interest.

Total the income amounts that you expect to receive. If you expect to have other sources of income, be sure to include these in your total.

Now you can subtract this total from the total you got when figuring your total expenditures.

This is your annual income gap. If you divide this number by 12, you will have your monthly income gap.

Now What

Hopefully, the gap is not that much. But large or small, how do you close the gap?

You have a few choices.

  • Save more before your retirement.
  • Work past your hoped for retirement age
  • Think about a different lifestyle during retirement.
  • Work part-time during retirement.

A Secure and Happy Retirement

You now have a fairly accurate picture of the income that you will need. Now it is up to you to decide if you are financially ready for retirement.


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