Average Retirement Income

How Much Will You Need in Retirement?

What are your retirement goals? Do you plan on maintaining your current lifestyle, or do you want to enhance it? Retirement goals can differ significantly, but they all come with costs.

Retirement expenses fall into two categories: non-discretionary and discretionary:

• Non-Discretionary Expenses include certain needs and associated costs that are essential. Payments for basic living expenses, healthcare, insurance, debt and taxes fall into this category. Generally these costs are unavoidable, and with the exception of healthcare, are more likely to be fixed over time.
• Discretionary Expenses are more flexible, as they reflect wants instead of  needs. Nevertheless, they may represent important lifestyle enhancements or goals. The good news is you should be able to dial back your discretionary spending if necessary. But estimating the discretionary funds you might want after you retire and beginning saving now is usually a good start.

Once you figure out how much you might need during retirement to cover your non-discretionary and discretionary expenditures, don’t forget to factor in the impact of inflation as well as your time investment horizon when determining your longer-term income and cash flow needs:

• Inflation can erode your purchasing power over time. Since 1925, inflation has averaged approximately 3% a year.¹ So if you require $50,000 to cover annual living expenses, you would need almost $90,000 in 20 years just to maintain the same purchasing power, should the average inflation rate continue.
• Investment Time Horizon is another important factor when planning for retirement. Your lifespan could potentially last significantly longer than previous generations, meaning your savings need to provide for longer after you retire. Additionally, your investment time horizon may extend beyond your life expectancy if you have a younger spouse or wish to leave a legacy for family members or charity.

Does the Median Household Income Reflect Your Needs?

According to data from the US Census Bureau’s 2017 American Community Survey, the median total household retirement income in the US for households with a head of household over age 65 is $43,735.² Exhibit 1 breaks down this median total household income data by state.

Exhibit 1: Median Total Household Income with Heads of Household 65 years and older

Source: US Census Bureau, 2017 American Community Survey 1-Year Estimates. Presented in 2017 inflation-adjusted dollars.

But do any of the median incomes match your specific income needs? They might, but probably not. Do the median incomes take into account the longer-term effects of inflation? They don’t. Do they bear any relation to your personal time horizon or lifespan? No. They aren’t designed to be specific or forward-looking. The data simply presents an informative snapshot of median household income data, it is not meant to be a recommendation or goal for any specific retiree. 

Your personal circumstances define your unique needs and goals as a retiree—something to think about if you plan on treating these figures as benchmarks.

Average Retirement Income: Not the Best Way to Plan for Your Retirement

The average retirement income may hold little relevance for your personal situation, needs and goals.

Rather, your personal situation is likely defined by variables specific to you, including your retirement needs and wants (travel, hobbies, etc.), your rate of savings and any dependents who rely on you.

Furthermore, a national or state average doesn’t anticipate the changes likely to occur throughout retirement—the need to increase or decrease withdrawals, or unexpected health changes and expenses which may affect your income needs.

Hence, planning for the average retirement income or using it to project your retirement income needs is probably not the best strategy. After all, you’re not average—a personalized plan is more likely to keep you comfortable in your retirement years.

Are You on Track to Enjoy a Comfortable Retirement?

With careful planning, you may be able to achieve the retirement lifestyle you envision.

If you aren’t sure how to proceed or need help getting started with your retirement plan, speak with a financial adviser at Fisher Investments to learn more about planning for retirement.

¹Source: FactSet, as of 2/12/2018. Based on US BLS Consumer Price Index from 12/31/1925 to 12/31/2017.

²Source: US Census Bureau, 2017 American Community Survey, 1-Year Estimates. Presented in 2017 inflation-adjust dollars.