The Average Retiree Income

Have you ever wondered how your retirement income stacks up against the average retiree income? Understanding this isn’t about competition—it’s about context. Knowing where you stand can help you plan better, make smarter financial decisions, and create a retirement strategy that works for you.

The Data on The Average Retiree Income

According to the latest U.S. Census report, the average income for individuals over the age of 65 was $50,290. However, that number alone doesn’t tell us much. It’s like saying the average daily temperature in the U.S. is 57 degrees, but that means something very different in Miami than in Minneapolis.

To get a clearer picture, we turn to JP Morgan’s latest Guide to Retirement, which breaks retirees into different income groups based on what they earned before retirement. This data provides a better benchmark for retirees to understand where they fit within similar income brackets.

Why Knowing Other Retirees’ Income Matters

It’s natural to ask: why does it even matter what other retirees earn? After all, your retirement is your own, so why worry about anyone else? The answer is that it’s not about comparison—it’s about making informed financial decisions. Here’s why this information is useful:

1. Benchmarking Your Readiness – Are you on track, over-saving, or at risk of running short? Understanding how others in your income bracket structure their retirement finances can help you gauge your own readiness.

2. Setting Realistic Expectations – Does your expected retirement income align with the lifestyle you envision? Knowing what others at similar income levels live on can help you plan more accurately.

3. Structuring Income Sources – Seeing how others rely on Social Security, investments, and pensions can provide insights into how to optimize your own retirement income strategy.

Where Retirement Income Comes From

JP Morgan’s research categorizes retirees based on their pre-retirement income, starting at $30,000 per year and going up in increments—$40K, $50K, $60K, all the way to $100K. Higher brackets include $125K, $150K, $175K, $200K, and finally, $250K to $300K.

What’s fascinating is how the composition of retirement income changes as pre-retirement earnings increase. For those with lower pre-retirement earnings, Social Security is the dominant source of income.

For example:

• If someone earned $30,000 per year before retirement, about 74% of their income in retirement comes from Social Security, with just 26% from personal savings.

• On the other hand, someone who made $300,000 before retirement relies on Social Security for just 22% of their income, with the remaining 78% coming from investments and other sources.

This data highlights a major shift in income dependency as earnings increase. Lower earners rely heavily on Social Security, while higher earners depend much more on personal savings and investment income.

How Much Income Do Retirees Actually Need?

Now that we know where retirement income comes from, how much income do retirees actually need?

JP Morgan’s research also breaks down income needs by the same income groups. The key measure here is the replacement rate—the percentage of pre-retirement income needed to maintain the same standard of living in retirement.

Here’s what the data shows:

• A retiree who earned $30,000 per year still needs 98% of that income in retirement.

• A retiree who earned $100,000 per year needs about 86% of that income in retirement.

• A retiree who earned $300,000 per year needs about 72% of that income in retirement.

Why Higher Earners Need a Lower Replacement Rate

At first glance, it may seem counterintuitive that higher earners need to replace a smaller percentage of their income in retirement. But when you break it down, it makes sense:

1. Higher Savings Rates – Higher earners typically save a larger portion of their income while working, meaning their day-to-day living expenses are a smaller percentage of their earnings.

2. Tax Efficiency – Taxable income often drops in retirement, especially with strategic withdrawals from tax-advantaged accounts, leading to a lower overall tax burden.

3. Social Security's Role – Social Security is designed to replace a higher percentage of income for lower earners. High earners receive more in absolute terms, but it covers a much smaller fraction of their pre-retirement income.

4. Major Expenses Paid Off – Many higher-income households enter retirement with big financial obligations—like mortgages or children’s education—already taken care of, reducing their overall income needs.

5. Flexible Spending – Higher earners often have more flexibility in adjusting their spending based on market performance or other factors, reducing the need for a fixed, high-income replacement rate.

Rethinking the 70-80% Rule

For years, conventional wisdom suggested that retirees should plan to replace 70-80% of their pre-retirement income. But when we look at the actual numbers, that rule only applies to those earning $150,000 or more before retirement.

For lower-income retirees, the required replacement rate is actually higher, often 90% or more. This challenges the standard financial advice and highlights why a one-size-fits-all approach doesn’t work when it comes to retirement planning.

The Importance of Personalized Planning

This data certainly shows why retirement planning needs to be tailored to the individual. There’s no universal percentage that works for everyone, no matter what the stats say about the average retiree income. Instead, planning should focus on your specific income, savings, spending habits, and tax situation.

While hiring a financial planner can be beneficial, you don’t necessarily need one to get started. At the very least, using a planning tool like Boldin a few years before retirement can help you get a clear picture of where you stand.

By taking a data-driven approach, you can build a retirement plan that ensures financial security—without relying on outdated rules of thumb. Understanding how others structure their retirement income isn’t about comparison; it’s about using real-world data to make informed, confident decisions for your own future.