Average Retirement Income: It's Grim, but You Can Beat It

I'm living so far beyond my income that we may almost be said to be living apart. -- E. E. Cummings 

You can't live beyond your income for very long without getting into trouble. It's natural to look around at our neighbors and compare ourselves to them: Are we doing as well or better than they are? We can have the same questions in retirement, wondering how much retirement income our peers are receiving.

Image source: Getty Images.

It's helpful to know what average retirement incomes are, but the information has its limits, because each of us is in a different situation, with different needs. Let's take a look at average retirement income, what income you are likely to need in retirement, and how you might generate additional dollars in your later years.

Average retirement income

First off, know that average income might not be the number you really want to know. Imagine, for example, five people, with incomes of $15,000, $20,000, $25,000, $30,000, and $100,000. Their average income (which can also be referred to as their "mean" income), is $38,000. But clearly, fully four of them earn considerably less than that, making it not a very representative number. In this case, the median income might be more helpful. That's the middle number, when you list the five in ascending or descending order: $25,000.

According to recent government data, below are the average and median incomes for households of different ages:

Source: U.S. Census Bureau, Current Population Survey, 2016 Annual Social and Economic Supplement. 

Not surprisingly, the fact that a relatively small number of people have high incomes gives the chart higher averages than medians. Thus, more households aged 75 and older are living with incomes near $46,000 than ones near $63,000. Another thing to notice is how incomes tend to fall over time. That can make it difficult for those living on these fixed sums. Some costs in retirement do fall over time -- you might travel less and go out to eat less as you enter your 80s, for example -- but other costs, such as healthcare expenses, can rise.

Image source: Getty Images.

Sources of income

If you're wondering what kinds of income streams make up the numbers above, let's review some key categories. Social Security is a major income source for most retirees, designed to replace about 40% of the average worker's pre-retirement income (and less than that for those with above-average earnings). The average monthly Social Security retirement benefit was recently $1,366, which amounts to $16,392 per year. If your earnings have been above average, you'll collect more than that -- up to a recent maximum monthly Social Security benefit of $2,687 for those retiring at their full retirement age. That's still only about $32,000 for the whole year. (Fortunately, there are some strategies you might employ to get the most out of the Social Security program.)

What other income sources play an important role? A bunch. The Pension Rights Center listed the sources of income of Americans aged 65 and older as of 2015:

Source: PensionRights.org. 

Pensions have been phased out at most American companies, in favor of retirement plans such as 401(k)s. Traditional and Roth IRAs are also helpful retirement savings tools, able to supply income in later years. Of course, their helpfulness depends on how aggressively savers socked money away and how effectively it was invested. The median nest egg for those aged between 65 and 74 was recently about $148,000. That's not going to generate a lot of income.

Image source: Getty Images.

How much retirement income do you need?

There's no one-size-fits-all answer to that question, as each of us is in a different situation. We each need to spend some time figuring out how much income we need. Rules of thumb vary, with some experts suggesting you can get by on 35% of your pre-retirement income and others suggesting you'll need 70% to 80% of it.

Take into consideration whether you will have mortgage payments in retirement, whether you'll be supporting others, how costly your expected activities in retirement (such as traveling) will be, and so on.

Increasing your income in retirement

If it looks like you're going to come up short, know that there are steps you can take to boost your retirement income. For example, you can increase how much you're contributing to retirement accounts and your other savings accounts. You might work a few more years, too, delaying retiring. Doing so means your nest egg can grow while you defer starting to tap it. You might enjoy employer-sponsored health insurance for a few more years, too.

You might also be one of the many retirees who don't stop working entirely. By working for a the first few years in retirement -- perhaps at a low-stress, part-time job, you can take some pressure off your nest egg and stretch your dollars further.

The average retirement income in America isn't very impressive, but your particular retirement doesn't have to be bleak. The numbers in the table up top are just averages and medians. You can be above-average and above-median, if you take some action now.