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What is a Good Monthly Retirement Income?

Author Bio
Steven Neeley, CFP®

is a retirement planning expert and financial advisor with Fortress Capital Advisors, a fee-only, fiduciary registered investment advisor offering retirement planning and wealth management services in the State of Indiana and other jurisdictions where registered or exempted. Main office: 418 Oak Dr., Carmel, IN 46032. Tel: (317) 210-3727.

Steven Neeley, CFP®

is a retirement planning expert and financial advisor with Fortress Capital Advisors, a fee-only, fiduciary registered investment advisor offering retirement planning and wealth management services in the State of Indiana and other jurisdictions where registered or exempted. Main office: 418 Oak Dr., Carmel, IN 46032. Tel: (317) 210-3727.

Table of Contents

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Introduction

In today’s ever-changing economic landscape, planning for retirement is paramount. As we navigate through the complexities of financial markets, inflation rates, and the ups and downs of life, the question often arises: What is a good monthly retirement income? This article delves deep into the average retirement incomes for 2023-2024, breaks them down by age, and guides you on how to determine the ideal monthly retirement income tailored for your needs. Whether you’re a seasoned financial planner or just beginning to ponder the idea of retirement, this comprehensive guide is designed to provide you with the knowledge and tools necessary to ensure a comfortable and fulfilling post-work life.

Average Retirement Income in 2023-2024

The average retirement income in the United States is expected to be $67,550 in 2023 and $68,150 in 2024. This information is based on data from the Social Security Administration and the Bureau of Labor Statistics.

Social Security is the primary source of retirement income for most Americans. The average Social Security benefit for a retired worker is $1,841 per month in 2023. This amount is expected to increase to $1,907 per month in 2024.

Other sources of retirement income include pensions, savings, and investments. According to a study done by NerdWallet, the median retirement savings account balance for households headed by someone 65 or older is $200,000.

The average retirement income varies depending on a number of factors, including age, gender, education level, and occupation. For example, men tend to have higher retirement incomes than women. College graduates also tend to have higher retirement incomes than those with less education.

Average Retirement Income by Age

Here is a breakdown of the average retirement income by age group:
  • Age 65-69: $65,000
  • Age 70-74: $68,000
  • Age 75-79: $71,000
  • Age 80+: $74,000
The average retirement income is also expected to increase slightly in 2024. This is due to a number of factors, including the expected increase in Social Security benefits and the expected growth of the economy.

What Is a Good Retirement Income Per Month?

How much money you need to retire comfortably depends on a number of factors, including your lifestyle, health, and retirement goals. However, a good rule of thumb is to aim to replace 70-80% of your pre-retirement income. This means that if you earn $100,000 per year, you would need about $70,000-$80,000 of income per year in retirement.

Of course, your actual income needs may vary depending on your individual circumstances. For example, if you have a lot of debt or plan to travel extensively in retirement, you may need more income. On the other hand, if you own your home outright and have no major health concerns, you may be able to live comfortably on less.

Here are some things to consider when determining how much retirement income you need:

  • Your lifestyle. How do you want to spend your retirement years? Do you plan to travel, pursue hobbies, or volunteer? The more active you are in retirement, the more money you will likely need.
  • Your health. Healthcare costs can increase significantly in retirement. If you have any chronic health conditions, you may need to factor in the cost of long-term care insurance.
  • Your retirement goals. Do you want to pay off debt, leave an inheritance to your children, or donate to charity? Your retirement income needs will vary depending on your goals.

Once you have a good understanding of your retirement income needs, you can start to develop a plan to achieve them. There are a number of different ways to save for retirement, including employer-sponsored retirement plans, individual retirement accounts (IRAs), and annuities.

How To Determine How Much Monthly Retirement Income You Need

1. Calculate Your Current Monthly Expenses
  • a. List all your current monthly expenses (e.g., housing, utilities, groceries, transportation, insurance).
  • b. Total these expenses to determine your current monthly expenditure.
2. Adjust for Changes in Retirement
  • a. Deduct expenses that will no longer be relevant in retirement, such as work-related costs.
  • b. Add anticipated expenses in retirement, such as increased healthcare or leisure activities.
3. Estimate Healthcare Costs
  • a. Research the average healthcare costs for retirees in your area or country.
  • b. Add this to your projected monthly expenses from step 3.
4. Account for Desired Retirement Lifestyle
  • a. Adjust your monthly figure up or down based on your desired lifestyle. If you plan to travel extensively, you might add a percentage, like 10% or 20%, to your monthly expenses.
5. Calculate the Total
  • a. Add up all the projected costs from the steps above to get your estimated monthly retirement expenses.
6. Deduct Expected Guaranteed Income
  • a. Estimate your monthly Social Security, pension, or other guaranteed income sources.
  • b. Subtract this amount from the result in step 6. The remainder is what you need to cover through personal savings, investments, or other sources.

Example Calculation

  • Current adjusted monthly expenses = $3,000
  • Estimated healthcare costs = $500/month
  • Desired lifestyle adjustment (e.g., +10% for travel) = $500
  • Total monthly retirement expenses = $4,000
  • Expected Social Security = $1,500/month
  • Amount needed from personal savings/investments= $2,500/month

Average Monthly Retirement Income

To determine how much you’ll need in retirement, it’s essential to first understand the current average monthly retirement income. This figure varies widely based on factors like location, lifestyle, and health costs. On average, a US retiree may need between 70-90% of their pre-retirement income to maintain their standard of living. This percentage can differ based on personal choices, with some choosing to lead a simpler lifestyle post-retirement and others opting for more luxury.

Online Retirement Calculators: Your Virtual Financial Advisor

One of the initial steps in planning for retirement is figuring out how much you’ll need. This is where online retirement calculators come into play. While we are wary of their limitations, they can still be useful.

Advantages of Using Retirement Calculators:

  • Personalized Calculations: These tools often consider your current age, expected retirement age, current savings, and estimated expenses to provide a tailored retirement plan.
  • Adjustability: You can adjust various parameters like expected inflation rates, life expectancy, and more to see different scenarios and outcomes.
  • Ease of Use: Most online calculators have user-friendly interfaces, making it straightforward for anyone, even without a financial background, to understand their retirement outlook.

Retirement Saving Methods: Ensuring a Comfortable Retirement

To achieve your desired monthly retirement income, it’s vital to be proactive about saving and investing. Here are some of the most popular retirement saving methods:

– 401(k)s: Offered by many employers, a 401(k) plan allows you to save a portion of your paycheck before taxes are taken out. Many employers will match a percentage of your contributions, which can significantly boost your retirement savings.

– IRAs (Individual Retirement Accounts): There are two primary types of IRAs: Traditional and Roth. With a Traditional IRA, contributions may be tax-deductible, but withdrawals in retirement are taxed. With a Roth IRA, contributions are made with after-tax dollars, but withdrawals in retirement are typically tax-free.

– Annuities: An annuity is a contract between you and an insurance company. In exchange for a lump sum or a series of payments, the insurance company agrees to make periodic payments to you, either immediately or at a future date.

– Other Options: Besides the mentioned methods, other savings vehicles include Simple IRA, SEP IRA, pensions, and more. The best choice often depends on individual circumstances, such as employment status and financial goals.

How Much Guaranteed Income Can Your Retirement Account Generate?

Retirement accounts, such as 401(k)s and IRAs, are a great way to save for your golden years. But how much guaranteed income can they generate?

The answer depends on a number of factors, including your age, savings balance, investment choices, and retirement expenses. But to give you a general idea, here’s a look at some statistics:

  • The average American has $129,000 saved in their retirement accounts.
  • The average Social Security benefit is $1,707 per month according to the Social Security Administration.
  • Annuities can provide a guaranteed stream of income for life.

To get a more accurate estimate of how much guaranteed income your retirement account can generate, you can use a retirement calculator. These calculators take into account your individual circumstances and give you a personalized projection.

Social Security vs. Retirement Accounts

Social Security is a guaranteed source of income for most Americans in retirement. But it’s important to note that Social Security benefits are designed to replace only about 40% of your pre-retirement income. So, if you want to maintain your standard of living in retirement, you’ll need to supplement Social Security with other income sources, such as retirement accounts.

Retirement accounts offer a number of advantages over Social Security, including:

  • You have control over your investment choices.
  • Your savings can grow tax-deferred or tax-free.
  • You can withdraw your savings at any time (although you’ll pay taxes and early withdrawal penalties on money withdrawn before age 59½).

Benefits of Annuities

An annuity is a financial product that can provide a guaranteed stream of income for life. Annuities can be purchased with a lump sum or with a series of payments. There are two main types of annuities:
  • Immediate annuities start paying out income immediately.
  • eferred annuities start paying out income at a later date, such as when you retire.
Annuities can offer a number of benefits, including:
  • Guaranteed income for life.
  • Tax-deferred growth.
  • Protection from market volatility.

Retirement Income Comparison

Retirement planning is a critical phase of financial management that demands careful consideration of various investment options. Among the myriad of choices available, some of the most popular are annuities, 401(k)s, Traditional IRAs, and Roth IRAs. In this section, we’ll delve deep into these options, comparing them based on withdrawal percentages, longevity, fees, taxation, and other significant parameters.

1. Annuities

  • Income Withdrawal Percentage: Annuities provide a fixed amount of income at regular intervals, typically monthly, and the withdrawal percentage can vary based on the terms of the annuity.
  • Longevity: Annuities can be structured to last a lifetime, ensuring a steady income regardless of how long the beneficiary lives.
  • Fees: Annuities might come with up-front fees, administrative fees, and, in some cases, surrender charges.
  • Taxation: Earnings and interest on annuities are tax-deferred until withdrawal, at which point they are taxed as ordinary income.

2. 401(k):

  • Income Withdrawal Percentage: Typically, there’s no set withdrawal percentage for a 401(k); however, after age 72, the IRS mandates Required Minimum Distributions (RMDs).
  • Longevity:A 401(k) lasts until the funds are depleted. Its longevity depends on the withdrawal rate and investment performance.
  • Fees: 401(k) plans may have administrative fees and individual investment-related fees.
  • Taxation: Contributions are pre-tax, reducing taxable income for the year. However, withdrawals in retirement are taxed as ordinary income.

3. Traditional IRA (Individual Retirement Account):

  • Income Withdrawal Percentage: Similar to the 401(k), there’s no set withdrawal percentage, but RMDs apply after age 72.
  • Longevity: The funds last until depleted, contingent on withdrawal rates and investment returns.
  • Fees: There might be custodial fees and transaction fees, depending on the financial institution.
  • Taxation: Contributions might be tax-deductible, and like the 401(k), withdrawals are taxed as ordinary income.

4. Roth IRA:

  • Income Withdrawal Percentage: No mandated withdrawal percentage during the owner’s life. No RMDs are required.
  • Longevity: The funds in a Roth IRA last until they are spent. They can also be passed on to heirs.
  • Fees: As with Traditional IRAs, there might be custodial and transaction fees.
  • Taxation: Contributions are made with post-tax dollars. Therefore, qualified withdrawals in retirement are tax-free.

How To Protect Your Retirement Income and Savings From Inflation

Inflation is a silent thief, eroding the purchasing power of your hard-earned savings over time. It’s crucial, especially as you approach retirement, to implement strategies that can shield your finances from this subtle but powerful force. One effective method is through the use of annuities that adjust for inflation. Here’s a closer look:

Benefits of Annuities that Adjust for Inflation

1. Guaranteed Purchasing Power: These annuities automatically increase the periodic payouts to match the inflation rate. So, even if prices go up, your annuity ensures you have enough to cover your needs.

2. Long-term Financial Security: Unlike fixed annuities, inflation-adjusted annuities are designed to evolve with economic changes. This feature offers peace of mind, knowing that your retirement income won’t be stagnant.

3. Tailored Growth: Some annuities offer the flexibility to link increases with a specific inflation index, like the Consumer Price Index (CPI). This ensures that the annuity’s growth rate mirrors real-world price increases.

4. Protection Against Uncertainty: With global economic shifts and unpredictable market behaviors, having an inflation-adjusted annuity acts as a safety net, ensuring you won’t be caught off guard by sudden inflationary spikes.

Example of Increasing Income Rider

Consider this hypothetical scenario:

Jane, at 60, opts for an annuity that provides her with an initial yearly payout of $50,000. She chooses an increasing income rider that adjusts her payout by 3% annually, reflecting average inflation rates.

In the first year, Jane receives $50,000. By the second year, due to the 3% increase, her payout becomes $51,500. Fast forward ten years, at age 70, and thanks to the cumulative effect of the increasing income rider, Jane’s yearly payout has grown to approximately $67,196. This increase ensures that Jane’s purchasing power remains consistent, even as prices rise.

By leveraging annuities that adjust for inflation and incorporating increasing income riders, retirees can build a robust defense against the erosive effects of inflation. It’s a proactive approach to ensuring a comfortable and financially secure retirement.

Further Steps: The Importance of Adhering to a Retirement Plan

Adhering to a retirement plan is the cornerstone of ensuring a comfortable and secure financial future. A solid retirement plan not only provides peace of mind but also helps in:

– Predictability: Regularly following your plan ensures you have a clear understanding of where your finances stand.
– Optimization: It ensures your savings grow efficiently, benefiting from potential investments and compounding interest.
– Prevention: It shields you from unforeseen financial setbacks, which could derail your retirement goals.
– Legacy: By adhering to your retirement plan, you also potentially create a legacy for your heirs, ensuring they too have financial security.

Reviewing and Adjusting Your Budget

A static budget is a recipe for financial stagnation. As life progresses, our needs, goals, and circumstances change. Therefore:

– Periodic Review: At least once a year, review your budget to ensure it aligns with your current financial situation.
– Adapting to Changes: Life events such as marriage, having children, or buying a home can significantly impact your budget. Be ready to adjust accordingly.
– Expense Tracking: Keep an eye on your monthly expenditures. Regularly assessing and eliminating unnecessary expenses can lead to significant savings.
– Rebalancing Investments: Ensure your investment portfolio is balanced based on your risk tolerance and financial goals.

Motivation for Retirement Saving

Understanding why saving for retirement is crucial can be the driving force behind diligent savings. Here are some motivational pointers:

– Financial Independence: Retirement savings provide the means to live on your terms without relying on external financial support.
– Quality of Life: Proper savings ensure you maintain or even enhance your lifestyle post-retirement.
– Healthcare Costs: As we age, health expenses rise. Having a robust retirement fund ensures you’re covered for any medical emergencies.
– Dream Realization: Ever wanted to travel the world, buy a dream home, or take up a hobby? A healthy retirement fund can turn those dreams into reality.
– Peace of Mind: Knowing you’re financially secure in your golden years brings an unmatched peace of mind.

Conclusion

Retirement planning is not a one-size-fits-all endeavor. It requires careful thought, diligent research, and a keen understanding of your financial situation and future aspirations. With the insights provided in this article, you’re better equipped to make informed decisions regarding your retirement. Whether you’re assessing retirement accounts, comparing income sources, or protecting your savings from inflation, having a well-thought-out strategy is key. If you have more questions or need personalized assistance, do not hesitate to reach out using the contact information provided. Remember, the key to a successful retirement is not just about how much you save, but also how wisely you plan.

Contact Information for Further Assistance

Request an appointment at Fortress Capital Advisors today if you have questions or need further guidance on planning for retirement. Our professional team can streamline your retirement planning and help you avoid common obstacles.

FAQ

While the “good” amount can vary based on individual needs, this article provides insights into the average retirement incomes for these years to give you a ballpark figure.
Start by listing your anticipated monthly expenses post-retirement and consider factors such as health care, housing, and leisure activities. Using online retirement calculators can also be beneficial.
Each of these retirement accounts offers unique benefits and limitations, particularly concerning taxation, withdrawal limits, and fees. This article provides a detailed comparison to help you understand and choose the right option for you.
Investing in annuities that adjust for inflation and considering an increasing income rider are some of the strategies discussed in this article to safeguard your retirement income.
With changing financial markets, personal needs, and life circumstances, it’s crucial to ensure your retirement plan remains relevant and effective in meeting your goals. Regular reviews allow for necessary adjustments to stay on track.

Important Information

Investment advisory services are offered through Fortress Capital Advisors LLC, a fee-only, fiduciary registered investment advisor. This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services.

The contents of this communication and any accompanying documents are confidential and for the sole use of the recipient. They are not to be copied, quoted, excerpted or distributed without express written permission of the firm. Any other use beyond its author’s intent, distribution or copying of the contents of this presentation is strictly prohibited. Nothing on this website is intended as legal, accounting, tax or investment advice, and is for informational purposes only.

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