Retirees may no longer have paychecks coming in, but of course they still need income.
Social Security is the most common source of retirement income, but nearly 80% of retirees also had one or more sources of private income in 2022, according to the Federal Reserve.
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This included income from a pension; interest, dividends, or rental income; and wages/salaries (some considered themselves retired even if they were still working in some capacity).
The average before-tax income for households of retired Americans in 2022 was $96,668, according to the central bank’s Survey of Consumer Finances. The median before-tax income for this group was much lower at $47,560.
This suggests the average income is skewed by a small number of retirees with high earnings — and it paints a misleading picture of just how retirees as a group are faring.
In reality, many retirees earn well below the average, so it’s no surprise 59% of them have expressed concerns about their finances, according to a MedicareFAQ survey.
Keep in mind also that the average annual expenditure of households of those 65 and older was $57,818 in 2022, according to the Bureau of Labor Statistics.
If you don’t want to be among those with financial worries, it’s important to understand why so many struggle — and what you can do to beat the averages.
Social Security doesn’t cut it, and retirees have too little saved
Retirees typically get their income from Social Security and savings. For many, these two sources both fall short of providing what’s needed.
The average retirement account balance for retiree households was $513,200 in 2022. The median balance was just $170,000. Retirement savings of $513,200 provides around $20,000 in annual retirement income if you follow the 4% rule that advises limiting withdrawals to 4% of your balance to avoid running short of funds too soon.
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Of course, Social Security supplements savings, but benefits are intended to replace only 40% of pre-retirement earnings and average just $1,907 per month.
Beat the average for a secure retirement
If you want your retirement to be more secure than most, you’ll want to try for an income that equals or exceeds the average the Fed data revealed. In other words, your goal should be to become one of those large accounts that throws the numbers off and makes the average skew high.
It’s still possible as long as you have some time left in your working life. If you’re still on-the-job, prioritize saving and take full advantage of any employer 401(k) matching funds available to you.
You can also make a plan to delay your Social Security benefits claim, as waiting beyond the time you become eligible for benefits at 62 will increase the size of your monthly checks until age 70.
By boosting both your savings and Social Security benefit, covering expenses will be easier.
For current retirees, an income below average can be harder to change, so living within your means will become key. Keep a careful eye on your budget, avoid exceeding a safe withdrawal rate, and consider lifestyle changes such as a move to a low cost of living area if things get tight.
Both current and future retirees may also benefit from financial advice about retirement preparedness as current high inflation has demonstrated just how difficult life can become for those on a fixed income when things don’t go as planned.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
