How Much Money Do You Need to Retire in The United States?
With government support dwindling and employer pension becoming less generous, it’s never been more important to prepare for retirement properly. If you’re wondering how much money you need to retire in the US is and where you stack up, you’re in the right place. We’ll outline the figures and let you know how to optimize your retirement income.
Nobody wants to be below average, especially when it comes to money. Some estimates suggest 50% of households might not have enough money to maintain themselves comfortably in retirement.
Exactly how much money you need to retire in the US varies depending on age, household size, and location. If you’re curious about where you fall or should aim to fall, keep reading.
How much money do you need to retire in the US?
The mean retirement income in the US for households is $67,238 and the median income is $43,696 (US Census Bureau, 2017).
As you can see there are a couple of states that skew the mean up quite a bit. This figure also lumps everyone together regardless of marital status or dependents. Let’s break it down more.
Average retirement income by age
Age can impact how much retirement income someone has for a few reasons. The most significant is that, as people grow older, they gradually run down their retirement pot.
People born in different periods may also have been eligible for different benefits from the state.
Here’s the median income per household by age (US Census Bureau, 2017):
- 55-59: $73,611
- 60-64: $64,846
- 65-69: $53,951
- 70-74: $50,840
- 75+: $34,925
Average retirement income by state
Maryland tops the list of states with the average retirement income, with an average of whopping $84,805. (Though District of Columbia scores higher) Meanwhile, Mississippi is at the bottom, with a retirement income of $45,081.
But just in case you wanted a full list to see where your state falls, here you go (from the US Census Bureau, 2019):
|District of Columbia||$86,420|
The average retirement income you need
An even more important question than where the average retirement income stands currently is knowing how much money do you need to retire in the US.
There’s no point in aiming for the average — you should make a plan for financial freedom to make sure you meet your goal.
Some experts recommend aiming for a retirement income worth 80% of your salary while working. However, this depends on your lifestyle after retiring. For instance, if you plan on moving away from the city to a rural area, living mortgage-free, and staying at home most of the time, 80% of your pre-retirement income would be excessive.
Looking for some numbers? On average, senior households spend around $45,756 a year — around $1,000 less than the average across the US.
A typical retirement income plan in the US
Whether you found the figures above depressing or comforting, let’s break them down by looking at where people get their income from.
There are three main income sources: social security, employer retirement plans, and private savings. Some people even get income from all three sources, although this is relatively unusual.
The federal government uses tax income to give all eligible citizens social security during their retirement. IDeally, social security should make up around 40% of your retirement income.
On average, you’ll receive around $1,514 a month from social security, but this varies depending on various factors, such as:
- The age you retire
- How many years you paid into the system
- How much you earned when you were working
Social security is nice but it is not intended to be your sole source of income.
Employer retirement plans
Most people also get retirement income from their employers. Some employers even offer matched contributions to 401(k)s.
Unfortunately, jobs with good retirement plans are becoming harder to find, but they’re still out there — if you pick the right career path. Public sector workers, tradespeople, and those in the insurance and pharmaceutical industries often get a good deal.
Although employer retirement plans tend to give you a better deal, there are a few reasons why you might want to open a private pension.
- You might be self-employed or work for an employer that doesn’t offer a retirement plan.
- You might have hit the maximum threshold for your employer to match contributions to your 401(k).
Private savings are likely to become increasingly necessary to achieve financial wellness. Yet of the 66% of people who receive income from private financial assets, half of them get less than $1,754 a year (Pension Rights Center).
While these numbers are not so great, that doesn’t mean your returns have to be. And there are many more investment options available today to help you start. It’s never too late!
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