Average Retirement Income

When planning for retirement, you need a strategy to help support the life you envision. This strategy should take into account your retirement income needs and any goals you aim to pursue. Given the personalized nature of your needs and goals, is the average retirement income relevant to your planning?

What is Average Retirement Income?

Some investors may look to the average retirement income as a goal for their retirement strategy. These average retirement income figures can vary based on the cost of living in specific regions, and may initially seem to be a useful piece of information during your retirement planning.

While discussing the average retirement income with your financial advisor may be a good place to start before you reach retirement, there are other factors to consider that may change your perspective on whether the average income for retirees is enough for you long-term.

A Useful Benchmark or Irrelevant? 

You may have vastly different needs and goals when you retire than the average retiree. Even if your circumstances are similar to the average retiree, individual differences may mean you need to take a different planning approach.

Instead of planning your retirement around a median or an average household income figure, it might be more prudent instead to start your planning process using your own current personal retirement savings and anticipated spending for your particular needs and goals. You likely vary in at least one way from a person of average retirement age, average retirement income, average social security benefits, etc.

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How Much Will You Need in Retirement?

Rather than rely on an “average” figure, you can arrive at a custom target by starting with 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 because 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 since your investment time 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 currently 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.

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. As such, relying on an “average” figure to plan for your retirement income needs may put your long-term goals at risk.

Rather, your personal situation is likely defined by variables specific to you, including your retirement needs and wants, 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, unexpected health changes or expenses that could 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.

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