Everyone dreams of retiring one day. Whether you’re planning to sit on a beach with fruity drinks or enjoy a quiet retirement in your home, there aren’t many people who don’t look forward to taking time for themselves after a long career.

However, just because you’re retired doesn’t mean you don’t need to worry about money anymore. You’ll need some form of retirement income to pay for your living expenses. Depending on how you plan to retire, you might need more income than other people.

So, what is a good retirement income, and how can you make sure you’ll be able to cover your expenses? Here’s what you need to know.

What Is the Average Income of Retirees?

Each year, the Census Bureau publishes a report called “Income and Poverty in the United States.” If we assume that householders 65 and older are primarily retired, the median income of a retiree in 2020 was about $46,360.

Finding the average income can be helpful, but note that averages are just that: averages. Many factors could influence a retiree’s income.

For example, those living in a higher cost of living area likely earned higher incomes, which could translate to higher savings, larger pensions, and more substantial Social Security benefits.

Plus, the average income may or not be enough for you based on your personal retirement goals. Traveling and dining out can be expensive, and some retirees splurge on big purchases like boats and RVs, which can be costly to maintain. Even downsizing to a condo can cut into your income (those HOA fees are not cheap).

How Much Are Retirees Spending Per Year?

Another metric to think about is how much the average retiree spends each year. As long as your retirement income covers your spending, then you’re doing well. If you can earn more in retirement than you spend, you’ll be prepared for economic downturns or be able to increase the nest egg you leave to your descendants.

The average retiree at age 65 can expect to live another 19.4 years and spend $987,000 from retirement age onward, which is an average annual spend of $50,876.29–that’s $4,500 more than the average yearly retiree income!

Like retirement incomes, the amount retirees spend will vary widely. Retirees who own their homes won’t have to pay rent or mortgages. Those who live in high-cost areas like coastal cities can expect to spend more than those who live in low-cost areas.

Unsurprisingly, retirees tend to spend far more on health care than younger people. The average retired household spends almost $7,000 per year on health care compared to roughly $5,000 per year for non-retired people, a difference of nearly $2,000 per year.

Even your hobbies can have an impact on your retirement spending. Someone who wants to play golf every day will probably spend more than a retiree who likes going to the park to read and people watch.

Related: 6 Big Expenses You Will No Longer Have In Retirement

Where Does This Retirement Income Come From?

Retirees may draw a portion of their retirement income from a combination of Social Security, pensions, and savings.

Now is the time to maximize your retirement income.

There is a penalty for drawing Social Security before your full retirement date and a bonus for delaying Social Security payments. That means waiting to take Social Security can increase your income.

Related: The Definitive Guide to Social Security Benefits

If you have a pension, make sure you fully understand it and how it works. Most determine your payments based on your tenure with the company, your age at retirement, and your average income over the past few years. Trying to earn as much as you can and making sure you meet the requirements for the top payout amounts will help maximize your pension income.

Most people put their retirement savings in 401(k)s and IRAs, which offer tax benefits for retirement savings. There are limits on how much you can contribute each year, so you’ll want to visit the IRS website to get the latest information on contribution limits.

Maxing out these accounts, or at least contributing enough to take advantage of your employer’s matching contributions, can help you maximize your nest egg.

In short, to give yourself the highest possible retirement income:

  • Earn as much as you can during your career
  • Delay Social Security payments for as long as you can
  • Contribute as much as possible to retirement accounts
  • If you have a pension, stick with your employer and maximize your income before retirement

How Can You Predict Your Retirement Income?

Create a mySocialSecurity account. It’s a website run by the U.S. government and can give you an estimated monthly benefit. It also allows you to verify your career earnings to make sure the number is accurate.

Again, if your employer has a pension, you should look at the pension documents to figure out your benefit. Keep in mind that some pension plans will reduce your benefit based on your Social Security income, which can make your calculations a bit more complex.

Finally, figure out how much you’ll take out of your savings each year.

If you have cash in an interest-earning account, base your withdrawals on how much money you have, the interest the account pays, and how long you expect to need the income.

For example, if you have $500,000 in an investment account earning an annual return of 6%, you can withdraw $3,000 per month for 22 years. The more you have saved, the more you can withdraw. Mutual of Omaha has a handy calculator you can use to figure out how long your savings will last.

If you’ve built a solid investment portfolio, you might be able to live off the interest. One rule of thumb that you can use is the 4% rule, which states you can safely withdraw 4% of your initial savings each year without having to worry about it running out.

The 4% rule came about from the Trinity Study, where researchers found that 4% is a safe withdrawal rate for an investment portfolio with an even split of stocks and bonds. Over 30 years, the investor would only run out of savings 5% of the time.

So, if you have $1 million saved, you could assume that your nest egg will provide you a regular income of $40,000 per year or $3,333 per month in retirement.

Related: 6 Ways to Live On 4% of a Million Dollars When You Retire

Bottom line: What Is a Good Retirement Income?

There are a lot of ways to define a good retirement income. You might aim for an income higher than the average($46,360) or for an income that’s sufficient to support your lifestyle. Whatever you decide your goal is is up to you.

As long as you have an idea of your retirement expenses and can predict your retirement income and how much you’ll need to save to reach your target income, you’ll be on your way to a good retirement.


  • TJ Porter

    TJ is a Boston-based freelance writer who specializes in credit, credit cards and bank accounts. In his spare time, he enjoys reading, writing, cooking, playing games (of the video and board varieties), soccer, and ultimate frisbee. You can find his work on his website, tjporterwriting.com [http://tjporterwriting.com/].