Reap The Benefits Of Compound Interest
No matter how much you need to save to retire the way you want to, the earlier you start contributing to your super fund the better.
“The power of compounding returns can help you increase your retirement savings, as can spending less than you earn and consciously saving the difference, says Tim. “Compounding involves adding any earnings from your investment back to it, essentially investing more, allowing you to generate greater returns over time.”
How Much Income Do You Need To Retire
How much you need to retire will depend on how much you want to spend in retirement. Clearly, the more you spend, the more you need to have saved up for retirement.
The average retirement
Research by the Retirement Living Standards provides three different examples. They find that for a couple, the minimum income needed to meet basic needs is £16,700 per year. As the quality of your retirement increases, so does the cost with a comfortable retirement costing £49,700 per year.
Your individual retirement
Whilst the above example is helpful, it doesnt necessarily reflect the cost of your individual retirement. You are not a statistical average. You are unique and the cost of your retirement will be unique to you.
You should instead calculate what your personalised retirement expenditure is likely to be. If youre unsure where to start, then work out what you currently spend.
For example, if you earn £5,000 per month and have about £2,000 per month leftover, your expenses are probably around £3,000 per month. Once you know what you spend today, you need to ask yourself how this is likely to change once you are retired.
Will you be spending more on travel and holidays?
Will you be spending less on commuting?
Will you buy a new car?
It will be useful to create a retirement timeline, showing all the different events:
Free retirement expenditure form
Breaking Down The Average Retirement Income In 2021
Breaking down the data by retiree or household age reveals some interesting trends. In particular, the older the retiree or household, the less the average retirement income. Here are median and mean incomes for retirees in different age brackets, according to the U.S. Census Bureaus Current Population Survey Annual Social and Economic Supplement:
|Age of Household|
|Households Aged 75 and Over||$34,925||$54,416|
Note that the median retirement income for households aged 60-64 is nearly twice as much as the median retirement income for households aged 75 and over. The difference is even more stark for single retirees: According to the Pension Rights Center, half of all single Americans who are 65 years of age or over have an average retirement income of less than $24,224 per year.
Keep in mind that these are national averages. However, the cost of living varies greatly from one area of the country to another so the averages arent necessarily useful for comparison unless theyre further broken down by region. For example, a median income of $54,000 for a retired 65-year-old couple living in the rural Midwest would probably allow for a more comfortable retirement lifestyle than the same income would for the same age couple living in a high-cost metropolitan area like New York City or San Francisco.
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What Is A Good Pension Pot At 60
When people think about early retirement, they think about pensions. Im often asked what is a good pension pot at 60? Or what is the average retirement age?
The average UK pension pot is £50,000, and the average pension income in the UK is £511 per week. But simply know what the average UK pension pot value is, or the average UK pension income doesnt help you to retire early. It may sound trite, but what the average person has in their pension pot has no bearing on your individual retirement plans. At best, its irrelevant. At worst, its a distraction allowing you to retire early.
Ultimately, a good pension pot is one that allows you to retire early, and provides enough income for the rest of your life. Clearly, this depends on how much income you need. Likewise, how much to save for retirement is a function of how much you will spend in retirement. Its situational theres no such thing as a good pension pot.
Instead of asking what is a good pension pot?, the question you should be asking is how much do I need to retire? This is a broader question that takes into account not only your pensions but your savings and investments too. It considers how much income youll need and whether you have enough saved up.
You will also need to consider any other income you will receive like the State Pension or any final salary pensions. Deciding what retirement lifestyle you wish to lead, will help you work out how much income you need.
What Makes A Good Retirement Income
The rules for what makes a viable retirement income vary from expert to expert. However, the vast majority of them recommend something around 75% to 80% of your pre-retirement income. This can include all sources, such as 401s, IRAs, Social Security, part-time jobs and more.
The key, however, with retirement income planning, is ensuring that you dont over-withdraw from your retirement accounts. Failing to do so could bring the sustainability of your retirement into question, which is something you dont want to worry about later in life.
Another major factor to account for is your healthcare needs. If youre retiring early or are generally in good health, you may consider setting aside less for healthcare and Medicare. This could leave you open to either saving more for the future, or having a less cost-restrictive retirement for now. On the flip side, if your healthcare needs are substantial, youll want to be incredibly diligent with accounting for that.
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How Do You Set A Retirement Budget
The actual amount of income youll need depends on your standard of living, or the degree of wealth and comfort available to you. You may be able to get by on a good deal less than 80% of your pre-retirement income if you can survive without a car and you dont dine out often or pursue expensive hobbies. You may need to replace more if you want to travel, contribute to charity, or gift money to children or grandchildren.
A standard rule of thumb is to use the 80% point as a guide, then factor in income, lifestyle, and health expectations to modify your budget. You can estimate your costs using a retirement planning spreadsheet.
% Of All Retirees Use A Pension Or Retirement Plan As A Source Of Income
Investment accounts can be a powerful tool in planning for retirement, especially if consumers start investing early and make use of employer matches, if available.
57% of retirees use some sort of pension plan s, 403s, and similar accounts) for retirement income.
It was not surprising that 78% of retirees used Social Security as a source of retirement income, and 92% of those over 65 did so. It’s important to remember that Social Security benefits are meant to replace 40% of your annual salary in retirement, which is why preparing for retirement through saving and investing is so important.*The type of pension was not defined in this survey and could include plans that offer fixed monthly payments or defined contribution plans, such as a 401. Data source: Board of Governors of the Federal Reserve System .
|Retirees age 65 or older||All retirees|
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How To Protect Your Retirement Income And Savings From Inflation
While many people think of an annuity as a fixed income, some annuities offer the ability to increase payments to keep up with inflation. This retirement security is important because it can help to maintain the cost of living and prevent the purchasing power of retirement savings from declining over time.
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States With The Lowest Retirement Income
Mississippi has the lowest average retirement income required to live comfortably of $53,710 per year. Annual expenses in Mississippi come out to only $44,758 per year. Because Mississippi has the lowest life expectancy of 74.50 years and the average retirement age is 63 years, one can expect to need about 11.50 years of retirement savings, which equates to about $617,661.
With average annual expenses coming out to only $45,016 for someone 65 years or older, the average retirement income required in Oklahoma is $54,019. Someone looking to retire in Oklahoma would need to save for about 13.4 years of retirement, coming out to about $723,859 in savings.
The average annual retirement income in Arkansas is $54,329, just slightly higher than Oklahomas. The average retirement age in Arkansas is 62, and the average life expectancy is 75.40 years. This 13.4 years of expected retirement is the same as Oklahomas, meaning that the savings required to retire in Arkansas are only slightly higher than in Oklahoma at $728,010.
Missouri has the fourth-lowest average annual retirement income required to live a comfortable life at $54,701 per year. This is only a few hundred dollars higher than in Arkansas and Oklahoma. The average length of retirement is higher in Missouri, with the average retirement age at 63 years and the average life expectancy at 77.1 years. This 14.1 years of retirement will require about $771,281 in savings.
How Much Does The Average American Have Saved For Retirement We Dug Into The Statistics To Find Out
The COVID-19 pandemic has created a huge amount of economic uncertainty. Many people are unsure of their financial future — so much so that 40% of Americans are afraid they won’t be able to retire because of financial setbacks related to the pandemic.
Of course, retirement planning is a very personal journey. The amount you need to save depends on your age, income, desired retirement income, inflation, and more.
So what’s the average retirement savings in the United States? We dug into the most recent data to find out.
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Average Retirement Income By State 2022
Retirement might be decades away or right around the corner for some of us. No matter where you stand on the timeline, it is never too early to start planning for retirement.
Depending on your desired location of retirement, when you would like to retire, and how far away your retirement is, you will need to have a specific amount of money saved in order to live comfortably. Factors such as life expectancy, cost of living, and income are all vital factors.
The average amount of savings required to retire comfortably in the United States is $904,452. Among the 50 states, the savings required to comfortably retire ranges between $617,661 and $1.84 million.
In the table below, to help determine this, each states average retirement age, life expectancy, yearly expenses for someone 65+, and the savings required to retire comfortably in that state. An additional 20% is added to the yearly expenses to account for a comfortable retirement.
Withdrawal Strategies For Retirement Income
Being strategic about the way you withdraw retirement funds can protect your hard-earned savings. Without a solid plan, you may spend too much at the start of your retirement and not have enough money to support your lifestyle as you age. Here are a few different withdrawal strategies you can use to ensure this doesnt happen:
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How Being A Couple Affects Your Income Needs
Being the main breadwinner in a couple usually increases the amount of income youll need for retirement, since youre saving for two people instead of one. The money you save has to be enough to last for your lifetime and your spouse or partners, so that neither of you is left without income if you outlive the other.
Aside from differences in life expectancy, there are other factors that affect a couple income needs, including:
Target retirement dates for each partner
PT work status of each partner in retirement
Expected long-term care needs
All of those things must be considered when pinpointing what is a good monthly retirement income for a couple. The sooner you start thinking about your needs ahead of retirement, the easier it is to prepare financially.
Retirement Planning And Average Retirement Income
The average monthly retirement income is just that: an average. It doesnt necessarily encompass all the different variables that are going into your particular retirement income plan. With that said, you can still use the numbers for national retirement income as a yardstick to compare your own savings and earnings. If you find that your savings are falling short of your financial goals, there are a variety of options available to retirees, including reverse mortgages. If youd like to explore reverse mortgage solutions for your own retirement, contact one of our Reverse Mortgage Specialists to find out more.
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Increase Your Social Security Income
You can boost your retirement income with a focus on securing higher Social Security benefits. Here are a few suggestions:
- Postpone collecting benefits. The longer you wait, the more you will collect. 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.
Average Social Security Income For 2022
More than 85% of people 65 and older get Social Security. In 2022, For a single person, the average monthly Social Security check is $1,248. A married couple receives an average of $2,031 per month.
The average Social Security retirement benefit is currently $1,614 per month, or about $19,370 per year. For most people, this represents a significant decrease in their standard of living.
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How Much Do People Spend In Retirement
Retirees in our survey spent around £2,333 a month per household
To help figure out how much you need in retirement, we’ve spoken to thousands of retired Which? members, both those living alone and couples, to see where their money is being spent.
Households with two people spent a shade under £2,340 a month, or around £28,000 a year, on average to be ‘comfortable’ when we carried out research in 2022.
This covers all the basic areas of expenditure and some luxuries, such as European holidays, hobbies and eating out. Aiming for this level of income will provide a good platform for your retirement.
People have spent around 4% to 5% less as a result of the coronavirus pandemic in 2020 and 2021. Our research was carried out in April 2022 and consumers would have undoubtedly spent more on energy, food and petrol as the year progressed.
Youd need £45,000 a year if you include luxuries such as long-haul trips and a new car every five years.
States With The Highest Retirement Income
The average annual retirement income in Hawaii is $119,004 to live comfortably. Hawaiis average retirement age is on the older side at 66 years however, it has the highest life expectancy of any U.S. state at 81.50 years. To live comfortably in this period, one would need to save $1.84 million before retiring.
The average retirement income in D.C. is $100,419. The District has the oldest average retirement age in 67 years and a life expectancy of 77.10 years. With yearly expenses coming out to about $83,683, a person would need to save about $1.01 million to retire comfortably in the District of Columbia.
California has the third-highest average income required for a comfortable retirement. Because Californias average retirement age of 64 years is lower than D.C. and its average life expectancy is higher at 80.90 years, the total amount of savings required to live comfortably is $1.46 million, higher than D.C.s. However, because average yearly expenses are lower, the average annual income to live comfortably is lower at $86,171 per year.
4. New York
The average income required to retire comfortably in New York is $83,817 per year. Retirement in New York is expected to last just over 16 years, with an average retirement age of 64 years and an average life expectancy of 80.80 years. For these 16 years of retirement in New York, the average retiree needs to save $1.41 million, the second-highest among states.
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