When thinking about retirement income, it’s important to understand how yours compares to the average. So, what’s the average retirement income? Here’s a rough overview.
Input and Output
To answer this, some context is needed. First, the average retirement income includes Social Security, pensions, and savings. Secondly, the average can be misleading due to a handful of high earners skewing the results. Finally, we have to make some assumptions to get to practical numbers.
And don’t forget to factor in taxes and Medicare costs, as they play a big role.
According to the U.S. Bureau of Labor Statistics, as of 2024, the average annual pretax income for U.S. households aged 65 and older is approximately $67,462.
This is, however, a bit deceptive because these households contain about 1.8 people on average. Some might have a retired member still working, which complicates things. The BLS notes that the average income per person in these households is around $47,610.
A good chunk of this income comes from Social Security. The average monthly Social Security payment this year is $2,071, totaling about $24,852 annually from these benefits.
How much gets deducted for taxes? Not a whole lot. While withdrawals from standard retirement accounts are taxed (and some Social Security benefits may be taxed for high earners), many retirees find that their Social Security benefits are often tax-free. For individuals, the effective federal tax rate on taxable income, after standard deductions, rounds close to 12% for the average income of $47,610. Considering most of these individuals do not heavily rely on debt, many pay little to no income tax.
Additionally, many states provide similar tax breaks on these income levels.
However, other expenses also affect retirees’ finances. For example, Medicare Part A, which covers hospitalization, is usually free for most retirees at these average income levels, but Medicare Part B (for primary care) costs about $202.90 monthly, summing up to around $2,434.80 yearly. Costs for Medicare Parts C, D, and Medigap can vary, along with their annual deductibles.
Number
So, what’s the conclusion? Given all this, the average retiree makes about $45,000 a year before any taxes or health insurance costs.
But remember, take this estimate lightly. It’s based on a wide range of data, and many individuals over 65 either have better or worse situations. The Census Bureau indicates that roughly one-fifth of retirees rely almost entirely on Social Security. Plus, it doesn’t highlight the differences between single retirees and couples, which can be quite significant.
Still, it serves as a reasonable benchmark overall.
