Study: Americans' Average Retirement Income in 2023 | The Motley Fool (2024)

Retirees get their income from a number of sources. For some, it's a combination of pension payments, retirement plan withdrawals, investments, Social Security, and ongoing work.

Many seniors, however, are largely limited to Social Security as their primary income source. In fact, the Social Security Administration reports that, among elderly beneficiaries, 12% of men and 15% of women rely on the program for 90% or more of their income.

So what does the average income for retirees look like? Here's what we found:

Key findings

Key findings

• The average income for U.S. adults 65 and older is $75,254.
• The median income for U.S. adults 65 and older is $47,620.
• Average annual expenses for adults 65 and older are $48,872.
• The average monthly Social Security benefit for retired workers is $1,681 and is set to rise to $1,827 in 2023.

Average retirement income

Average retirement income

The Current Population Survey Annual Social and Economic Supplement (CPS ASEC) releases data every year. The 2022 CPS ASEC asked participants to report their household income for 2021. Based on that data, the average retirement income for U.S. adults aged 65 and older is $75,254. However, the median income for that age group is $47,620.

When we break this down on a monthly basis, the average income for U.S. adults aged 65 and older is $6,271. The median monthly income for that age group is $3,968. Clearly, that's a big difference in spending power.

The distinction between average retirement income and median retirement income is important. Whenever there's a data set where the median income is lower than the average, it means more people earn less than the average than those who earn more. In this context, $47,620 may be a more accurate representation of the typical retirement income than $75,254. Since there's such a wide gap between the two figures, it's fair to assume that a small percentage of wealthy retirees may be driving the average income upward.

It's important to note that these income figures apply to Americans aged 65 and older, but not everyone aged 65 and older is retired. Therefore, it can be argued that these figures aren't 100% representative of the average retiree's income because some people in that age bracket might still be working and earning money from a job.

However, most data sources do not distinguish between retirees and non-retirees when providing information about reported income based on age. So we need to work with the data we have.

As of the third quarter of 2021, roughly 67% of Americans aged 65 to 74 were retired, according to Pew Research Center data. Consequently, it's fair to make the assumption that the bulk of Americans aged 65 and older are, in fact, retirees.

Here's a breakdown of retirement percentages among older Americans as of Q3 in 2021:

We should also talk about the flipside of this equation. The data being relied on here applies to Americans aged 65 and older. Some people retire at an earlier age than that. But in the absence of having a clear sense of how many Americans younger than 65 are retired, it's probably best to use data for the 65-and-older set for this exercise.

It's also worth noting that, in 2021, the federal government issued a round of stimulus checks as part of the American Rescue Plan. That may have modestly boosted income among households aged 65 and older.

Not so surprisingly, when we break the average retirement income down by gender, we see that males aged 65 and older tend to have a higher income than their female counterparts. The average retirement income for male householders aged 65 and older living alone is $46,337, while the median income for male householders aged 65 and older living alone is $29,275.

By comparison, for female householders aged 65 and older and living alone, the average retirement income is $38,298. The median income for female householders aged 65 and older living alone is $25,212.

Because women commonly earn less money than their male counterparts, they tend to enter retirement with lower savings balances. Lower earnings can also result in lower Social Security benefits.

Average annual spending in retirement

Average annual spending in retirement

The average U.S. household spent $66,928 in 2021, according to the Bureau of Labor Statistics (BLS). In a separate report, the BLS found that average annual expenses for Americans aged 65 and older were $48,872, based on 2019-2020 data.

This discrepancy makes sense. Spending tends to decline in retirement, partly out of necessity and partly due to certain expenses not coming into play. Many retirees spend less than they did during their working years by virtue of having paid off their mortgages and not having to bear the cost of commuting to a job.

When we compare the average annual expenses of Americans 65 and older ($48,872) to the average retiree income of $75,254, we see that the mean income is enough to cover typical spending. But when we compare that average $48,872 in annual spending to the median retirement income of $47,620, the numbers get tighter.

Breaking these figures down monthly further highlights this point. On a monthly basis, the average American aged 65 and older spends $4,073. The median monthly income for that age group is only $3,968, which means the typical retiree may be looking at a modest but notable shortfall.

So what are Americans aged 65 and older spending their money on? Here's a monthly breakdown:

Average Social Security check

Average Social Security check

The average monthly Social Security benefit among retired workers is $1,681. In 2023, benefits will be eligible for an 8.7% cost-of-living adjustment. That will bring the average Social Security check up to $1,827.

As previously mentioned, Social Security is a primary income source for a large number of seniors. Among elderly beneficiaries, 37% of men and 42% of women receive 50% or more of their income from Social Security.

Do retirees have enough income?

If we choose to rely on median income more so than average income, it's clear that many retirees are facing an income shortfall based on average annual spending. Furthermore, the aforementioned spending data was collected before inflation levels began to soar in mid-2021. It's fair to assume that average spending among retirees is higher today than it was a few years ago.

Related retirement topics

As a general rule, retirees should aim for an annual income that replaces about 70% to 80% of their former earnings. That's just a general guideline because some retirees might choose to live very frugally and some might choose to live it up, thereby requiring 100% of their former income or even more. But those planning for retirement can use that 70% to 80% range as a baseline.

It should also be noted that Social Security will replace about 40% of the average earner's pre-retirement income. Higher earners will commonly see a smaller percentage of replacement income from those monthly benefits, and variables such as filing age can raise or lower Social Security benefits.

It's not a secret that Social Security is facing some financial challenges that could result in future benefit cuts. If that were to happen, we would likely see a notable shift in the average retiree's income.

How to boost retirement income

How to boost retirement income

The unfortunate reality is that many retirees don't have enough income to comfortably keep up with their expenses. But there are steps that can be taken to boost retirement income. These include:

• Saving aggressively in an IRA, 401(k) plan, or even a taxable brokerage account
• Investing in assets that continue to pay during retirement, such as dividend stocks, REITs, and bonds
• Delaying Social Security for a higher monthly benefit
• Working part-time in retirement
• Owning a business in retirement
• Maintaining an income property in retirement
• Monetizing one's home in retirement (such as renting out space in a retiree-occupied home)

Of course, the average retiree income will evolve from year to year, but so will the cost of living. We've seen that firsthand over the past 12 months as inflation has surged. It's important that workers do what they can to set themselves up with multiple income streams for retirement, and, ideally, income streams that can keep pace with or outpace inflation.

It's also essential that workers be aware of how much retirement might cost. It's generally better to err on the side of overestimating retirement spending because having access to more money later in life is certainly preferable to having less.

Sources

• Pew Research Center (2021). "Amid the pandemic, a rising share of older U.S. adults are now retired."
• U.S. Bureau of Labor Statistics (2022). "Consumer Expenditures--2021."
• U.S. Census Bureau (2021). "Table 3254. Consumer units with reference person age 65 and over by income before taxes: Average annual expenditures and characteristics, Consumer Expenditure Surveys, 2019-2020."
• U.S. Census Bureau (2022). "Current Population Survey Tables for Household Income."
• U.S. Social Security Administration (2022). "Fact Sheet: Social Security."
• U.S. Social Security Administration (2022). "Fact Sheet: Social Security: 2023 Social Security Changes."

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