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How Much Money Do You Need to Retire in The United States?

date December 18, 2020 time 4 min read 723 views

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.

The average retirement income in the US depends on various factors like location and profession
The average retirement income in the US depends on various factors like location and profession (source: newretirement.com)

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):

Alabama$50,536
Alaska$77,640
Arizona$58,945
Arkansas$47,597
California$75,235
Colorado$72,331
Connecticut$78,444
Delaware$68,287
District of Columbia$86,420
Florida$55,660
Georgia$58,700
Hawaii$81,275
IDaho$55,785
Illinois$65,886
Indiana$56,303
Iowa$60,523
Kansas$59,597
Kentucky$50,589
Louisiana$49,469
Maine$57,918
Maryland$84,805
Massachusetts$81,215
Michigan$57,144
Minnesota$71,306
Mississippi$45,081
Missouri$55,461
Montana$54,970
Nebraska$61,439
Nevada$60,365
New Hampshire$76,768
New Jersey$82,545
New Mexico$49,754
New York$68,486
North Carolina$54,602
North Dakota$64,894
Ohio$56,602
Oklahoma$52,919
Oregon$62,818
Pennsylvania$61,744
Puerto Rico$20,539
Rhode Island$67,167
South Carolina$53,199
South Dakota$58,275
Tennessee$53,320
Texas$61,874
Utah$71,621
Vermont$61,973
Virginia$74,222
Washington$73,775
West Virginia$46,711
Wisconsin$61,747
Wyoming$64,049
Average retirement income by state in 2019 (Source: US Census Bureau)
The average retirement income by state varies significantly
The average retirement income by state varies significantly (source: pixabay.com)

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.

Social security

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.

Different jobs and companies offer different pension and retirement schemes
Different jobs and companies offer different pension and retirement schemes
(source: pixabay.com)

Private savings

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.

  1. You might be self-employed or work for an employer that doesn’t offer a retirement plan.
  1. 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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George Schooling

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