Introduction: Average Retirement Income in America | Retirement Income Planning
Plenty of people feel pressure and anxiety when it comes to saving enough money for retirement. It’s a big milestone in everyone’s lives, when, in your fifties, sixties, or seventies, you finally hang up the career outfit.
Often with retirement income, social security alone is not enough to cover costs. Retiring is a significant adjustment. More and more people are discovering that they need to make other life changes, too.
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Properly conducting your retirement income planning can lift a huge weight off your shoulders. Unequivocally, starting young is your best bet. However, if you’re already several decades into life, starting late is better than never starting at all. The average retirement income is influenced by a number of factors, and retirement income planning is a vital step in securing the financial and anxiety-free future you want.
Retirement income funds can come from a variety of sources, and it’s important to think critically about retirement and explore all your options. You may not consider yourself much of a retirement income planner, but if you want the late-in-life support of a healthy retirement income, you need to develop your plan.
This article takes a look at ways to develop a solid retirement income. It looks at the average retirement income of adults ages 65 and up, and it explores the ways to make retirement income planning work for you.
Average Retirement Income
It’s worth starting out by taking a look at the average retirement income. In 2012, the average retirement income for Americans aged 65 and older was $31,742. In 2014, the average monthly retirement income from social security alone was $1,294 per month. That ends up being only $15,528 per year. The average social security income for couples where both members received benefits was $25,681.
A $30,000 annual income is not very much. By the time you’re of retiring age, you’ve most likely graduated into positions that value your time more highly. This is why social security is extremely important. It’s also why having retirement income beyond social security is a great idea.
If you haven’t started saving yet, you’re not alone. Almost 40 million households have no retirement savings at all. This means they’re stuck living on social security alone, or they are getting jobs to continue working into their retired years.
Retirement Income: Working through Retirement
It is increasingly more common for retirees to pick up jobs in order to supplement their retirement income. In 1990, only 15% of prospective retirees took part-time jobs in order to bolster their monthly income. In 2012, the number had increased to 30% of prospective retirees.
In 2014, the median income for work retirees aged 65 and older was around $22,250 dollars per year. The median amount means 50% falls at or below the $22,250 range, and the other 50% falls at or above the $22,250 annual range.
Many people, understandably, don’t want to work after they retire. A part-time job is not part of the ideal retirement income planning. Still, a part-time job of 15 to 20 hours per week can be enough to supplement the stringent social security benefit checks. In 2014, those who were earning income through work aged 65 and up had an annual income of $29,123. That nearly doubles the income received from social security benefits alone. But if you don’t want to work through your retirement in order to achieve your desired retirement income, there are other avenues you can pursue. Let’s take a look at other ways to net an income higher than the average retirement income.
Retirement Income Planning: Factors
Timing is everything when it comes to retirement income. Starting early and finishing late are two ways to maximize your post-retirement income. Holding off on retiring by just a few years can make a significant difference in the amount of retirement income funds available to you.
Delaying Social Security
As we’ve mentioned, there are factors that can influence your social security benefits. One of the biggest influencers of social security benefits is age. The average retirement age is now said to be around 62 years old. The longer you wait to cash in on social security, the higher your social security support will be. Waiting until you’re 65, for example, will net you more money per month than retiring right at 62.
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If you wait until the distinguished age of 70, you could see around a $300 increase in monthly benefits. If that doesn’t seem like a lot to you, consider that difference over the course of a year: that’s an extra $3,600 for your retirement funds. And after ten years, that’s an extra $36,000. A few years of waiting to retire on the front end means thousands of extra dollars.
Postponing Savings Account Withdrawals
Delaying on any withdrawals from your savings account will benefit you in a similar way. The interest will keep accruing on your larger, untouched sum the longer you wait to tap into it. As with social security benefits, a handful of years could mean tens of thousands of dollars.
This also means that even if you don’t feel as though you’ve saved enough by the time you’re 50 years old, it’s not too late to catch up. If you haven’t started a savings account for your retirement income, but your retirement is coming into view, investing in stocks could be the better answer. In your fifties, you have an opportunity for significant growth. At the historical market rate of 7%, your money should double every ten years. The longer you can wait to pull from your stock market or savings accounts, the higher your yield.
Milking Your Retirement Income for All It’s Worth
Maybe you’ve saved a decent amount; experts are saying even this might not be enough. The figure used to be around 70 to 80% of your pre-retirement income should be what you save. Now some experts are saying 100% or more of your retirement income should be accounted for, at least for your first decade of retirement. Spending might not dip as much as you expect in the first decade or so of retirement.
Proper retirement income planning can help your money stretch a lot further than your bank statements might suggest. Cutting down on spending before you start to pull on your nest egg does two things:
- more money goes into your savings account
- you get accustomed to budgeted spending
You don’t want to put all your time into developing this savings account and fussing over it throughout the years just so you can worry about it and fuss over it once you need it. You need a break from thinking about this whole retirement income thing!
Here are some ways to cut spending before you even retire, giving yourself that much more funding so interest can do its work:
- Cut down on cars (i.e. from two vehicles to one)
- Cut back on travel
- Consider moving to a less expensive location
In addition to the above elements, you can find discounts offered to retirees for a number of services. Certain restaurants will take a small percentage off the check. Museums, zoos, and theaters typically offer discounted tickets and entry passes. Public transportation in your area might offer price reductions for people 65 and up. Even grocery stores have certain weekdays where they host discounts for retired folks above a certain age.
Retirement Income Planning: Change of Scenery
Different locations have different prices of varying standards of living. New York City is significantly more expensive than Binghamton, New York. Certain parts of Philadelphia are more expensive than other areas of the city. That’s the nature of demand.
When it comes to the cost of living for a location, we’re dealing with more than just the cost of renting an apartment or the price tag on buying a new home. Access to inexpensive shopping locations changes too. Prices vary for restaurants and entertainment services. Even public transportation prices fluctuate based on your location. Certain locations are taxed higher than in other locations. In cities, you might need to pay monthly or yearly premiums for parking permits. This is where having fewer vehicles, or a house in the suburbs with a driveway, might make more fiscal sense as you prepare for retirement.
Consider the idea of moving to a different location. If you’re already in an affordable home in a convenient location, that’s great. If you’re curious, check out this retirement income calculator from Smart Asset. This will let you see how much you should save based on how you plan to live in your retired days. It includes a number of factors:
- How much you earn annually
- How much you’re setting aside
- How long it is until you retire
- How much you want to spend per month once you retire
- IRA information
- Pension information
- Your current location
It lets you know if you’re on track or what you need to do differently in order to stay on target with your savings and retirement spending goals. Another handy feature is the Smart Asset retirement map at the bottom of their calculator webpage. This shows you the best places to retire based on recreation facilities, retirement communities, doctor’s office density, and nearby discounts for seniors.
Another Element to Consider
If you plan to travel in your retired days, then you should consider downsizing your living situation. Go affordable on your housing if you plan on spending a good bit of your time away from home. Or, if you don’t plan on traveling, you can allocate more money to a comfortable living environment. Explore all of your options!
Bolstering Retirement Income: Asset Creativity
It’s possible to get even more creative. Airbnb lets you rent out single rooms of your house, or even your entire house, to paying customers. The arrangement can be for a night, a weekend, or even longer depending on what works for you.
This could be a perfect option if you’re traveling. You’d earn some extra money while you’re away. Or, if you have space, rent your extra room out while you’re home. Understandably, not everyone will be comfortable with that idea, but if it sounds interesting to you, check out Airbnb to learn more about becoming a host. Another option is renting out your automobile for around $30 per day using a service like Turo.
Reverse mortgages are gaining popularity—it’s an option more and more retirees are tapping into. It won’t be right for everyone, so ask around and do some research before diving in.
Retirement Income Funds: Other Expenses
There will always be the possibility of unplanned budget obstacles. Health is one of them. Obviously, the healthier you are, the less you’ll have to fret over your medical bills. A 2013 study indicated that an average 65-year-old couple would need around $220,000 to cover their major medical bills through 20 years of retirement. Healthier couples could save up to tens of thousands of dollars. Medical expenses and other major life events can throw a serious wrench into the budget plans if your retirement income planning was underdeveloped.
Another health element to consider is longevity, for couples 65 and older there is a 43% chance that one of them will live to see 95. Longer lives mean more years of expenses for retirees.
Closing Thoughts on Retirement Income Planning
The average amount earned from social security benefits alone is not enough for most to survive on comfortably. Unfortunately, a huge amount of families are still under-saving or haven’t saved anything at all. The reality is budgeting your social security checks will only get you so far.
There are plenty of roadblocks and unexpected life events that can mess up the budget. These events could force you back into work or into other lifestyle changes for which you hadn’t planned. We looked at a number of retirement income supplementation options. While viable, there is no substitute for saving. Save, save, save.
The earlier you start saving, the better off you’ll be. Even if you’re 55 right now, doing some investing or saving, as aggressively as you can, is better than simply throwing in the towel. Instead of succumbing to the anxiety of a less-than-satisfactory retirement income, get started on retirement income planning. Even if you only have a decade left to focus on surpassing the average retirement income, you have ways to build serious value. You don’t have to be the world’s best retirement income planner to make a significant difference in your quality of life and fiscal situation when you retire.
Keeping costs down and taking a nice, hard look at your finances and spending could be the difference between continued anxiety over a tight wallet, and the weightless shoulders of a person who doesn’t have to worry about money in retirement. It’s never too late to ramp up your savings. Don’t set unreasonable goals, and don’t shortchange your retired self either. Set a budget and a savings target that will see you living comfortably, happily, and worry-free.
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