What's the Average Retirement Income in the U.S.?

7 years' worth of real spending data reveals the average income and spending for retirees.

The U.S. Census found that people 65 and older have an average income of about $59,295 per year. But averages are misleading.

A millionaire and nine broke people average out to everyone having $100,000 in the bank. So that doesn't help anyone.

Ok, what about retirees in the middle?

The median personal income for Americans 65+ is about $29,740, and the median household income for 65+ households is $73,100. But both vary massively by state, city, and household type.

So how do we figure out how much retirees are actually earning and spending in retirement?

Thankfully, JP Morgan’s Guide to Retirement gives us some great data to work with.

Instead of just showing one flat average, they break retirees into income groups based on what they earned before retirement from $30,000 all the way up to $300,000.

In this article I'll show you what they discovered and how it can help you plan for retirement.

Why You Should Care About This

First, it shows you where you stand

• Are you saving enough compared to people who earned similar amounts?

• Are you ahead or behind the curve?

Second, it helps you get real about retirement

• What lifestyle can you actually afford in retirement?

• Should you plan to move somewhere cheaper?

Third, it shows you where the money will come from

• How much should come from Social Security vs. your savings?

• What's normal for someone at your income level?

Where Retirement Income Comes From

J.P. Morgan looked at seven years’ worth of real spending data from their Chase customers to find the top income sources for retirees.

That means they pulled information from checking accounts, cash withdrawals, credit cards, debit cards, and electronic payments made between 2016 and 2023.

In other words, this report is based on how people actually use their money day to day, not just surveys or estimates. (All the figures were adjusted for inflation so they reflect today’s dollars).

Here's where retirees income came from, sorted by income level:

Lower Earners ($30,000 pre-retirement)

• 74% from Social Security

• 26% from personal savings

Action Step: If you're a lower earner, focus on maximizing Social Security. Work at least 35 years and delay claiming until age 70 if possible for the biggest monthly check.

Middle Earners ($100,000 pre-retirement)

• 45% from Social Security

• 55% from personal savings and investments

Action Step: You need a strong savings rate. Social Security won't cover most of your expenses. Aim to save 15-20% of your income.

Higher Earners ($300,000 pre-retirement)

• 22% from Social Security

• 78% from investments and savings

Action Step: Social Security is almost irrelevant to your retirement. You must build substantial investment accounts. Consider maxing out 401(k)s, IRAs, and taxable investment accounts.

How Much Income You Actually Need

Your income replacement rate is the percentage of your working income you need to maintain your lifestyle in retirement.

Most people think they need 70-80% of their pre-retirement income in order to live comfortably after they quit working. This is wrong for most people.

Here's what JP Morgan data shows:

• $30,000 earner needs 98% of pre-retirement income

• $50,000 earner needs 91% of pre-retirement income

• $100,000 earner needs 86% of pre-retirement income

• $200,000 earner needs 79% of pre-retirement income

• $300,000 earner needs 72% of pre-retirement income

The data shows that the more you earned while working, the lower percentage you need in retirement.

Why Higher Earners Need Less

This seems backwards, but there are clear reasons:

1. Higher Savings Rates

If you earned $200,000 and saved $40,000 per year, you only spent $160,000 on lifestyle. You don't need to replace the $40,000 you were saving.

2. Lower Taxes in Retirement

• No more payroll taxes (Social Security/Medicare)

• Often lower income tax brackets

• No more 401(k) contributions

3. Major Expenses Are Gone

• Mortgage is usually paid off

• Kids are done with college

• Peak earning years often mean peak spending years

4. More Flexibility

Higher earners can more easily cut discretionary spending like expensive vacations or dining out. Lower earners have already cut out the extras.

Why The 70-80% Rule Is Wrong for Most People

Financial advisors love saying "replace 70-80% of your pre-retirement income." This rule only works if you earned $150,000 or more before retiring.

If you earned less than $100,000: You likely need 85-100% of your pre-retirement income.

If you earned less than $50,000: You probably need 90-100% of your pre-retirement income.

Bottom line: Lower earners have less fat to cut. Most of their income went to necessities, not savings or luxury spending.

How to Make Your Own Retirement Plan

Everyone needs a retirement plan, even if you don't hire a financial advisor.

Here's your step-by-step process:

Step 1: Calculate Your Target Income

1. Take your current annual income

2. Use the replacement rates above based on your income level

3. Multiply: Current Income × Replacement Rate = Target Retirement Income

Example: You earn $75,000 per year. You'll need about 88% in retirement. $75,000 × 0.88 = $66,000 per year in retirement

Step 2: Estimate Social Security

1. Create an account at ssa.gov

2. Look at your estimated monthly benefit at full retirement age

3. Multiply by 12 for annual amount

Example: If Social Security estimates $2,000 per month, that's $24,000 per year.

Step 3: Calculate Your Savings Gap

1. Target Retirement Income - Social Security = Amount needed from savings

2. Using our example: $66,000 - $24,000 = $42,000 needed from savings

Step 4: Use the 4% Rule

The 4% rule says you can safely withdraw 4% of your savings each year in retirement.

Formula: Amount needed from savings ÷ 0.04 = Total savings needed

Example: $42,000 ÷ 0.04 = $1,050,000 needed in savings

Step 5: Check Your Progress

1. Add up all your current retirement savings (401k, IRA, other investments)

2. Use a retirement calculator to project growth until your retirement date

3. Compare projected savings to your target

Step 6: Adjust if Needed

If you're behind:

• Increase your savings rate

• Consider working a few extra years

• Look at reducing expenses in retirement

• Consider part-time work in early retirement

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