Written by Today, we’ll be answering the question. What is a good retirement income? When it comes to retirement income, most of the time it starts with just… what is a good income? And that’s going to depend on a variety of factors that we’re going to discuss today.
Depends on where you live
First and foremost, you’ll notice that the amount that makes a good retirement income is going to change from state to state. If you are in the state with the highest retirement income, then you are in the district of Columbia. The District of Columbia has about $43,000 is what the average, or at least the median retirement income is as a result, you would say, okay, well, if I have $43,000 and that’s going to be pretty good for me to live in the district of Columbia. Now the lowest retirement income is in Indiana.
That amount is like $20,500 or $21, 000. And then the median is so around like $26,000 a year. So if you live in Indiana, you don’t need the $43,000 or at least, based on the median. You don’t need the 43,000. Now we’ll talk about some other factors that do impact what makes a good retirement income, but just the difference in the state that you live in, you can see that it significantly changes.
Where to start
What would be considered a good retirement income. Now you also want to be considering your expenses. What expenses are you going to take into retirement more times and that’s why a lot of people think it’s a great place to start by just saying if I have 80% of my income before retirement in retirement then I know I’m going to be doing pretty good.
The thought is you’ll have less money going towards taxes because you would pay little to no taxes. And that’s always what people are hoping for. But I caution that thought process because it is also true that you may have more expenses related to healthcare. The job that you had was subsidizing some of your healthcare expenses and when you don’t have that career anymore, that means that you have to cover all of the healthcare expenses.
Don’t forget about healthcare
Healthcare ends up becoming a much larger portion of people’s bills. Now, some people will have plans of using like Medicare or Medicaid, but there’s different rules that qualify you for it. So you want to make sure you at least take a look at that before you make that your plan to help you with your healthcare expenses.
But it is a good place to start where if you just say 80% of what I make now, then that’s what I’m going to have. And then you would take a list of your expense. Then you would say, okay, these are all the expenses I have now. I plan on getting rid of this expense by the time I retire. And I also plan on getting rid of these expenses by the time I retire.
Eliminate expenses
If you get rid of those and then count up the expenses, then you already have a pretty good idea of how much you would need in retirement. What would make a good income? You also want to keep in mind that you may not even live in the country. If you plan on moving to a different country, then you’d want to look at things like the exchange rates to see how much further or shorter your dollar goes.
There are some countries where your dollar is going to increase the amount of lifestyle that you can have by two, 300%. And there’s other states where it would be a haircut to live in that state and you have to exchange and pay for things using your American dollar. So you want to make sure that you keep these things in mind.
Retirement lifestyle
Other things that keep in mind when determining what makes a good retirement income is the overall lifestyle that you plan on having and your life expectancy. For lifestyle, Do you plan on traveling a lot? Eating out at fancy restaurants? Staying in all the most beautiful places all over the world?
Or do you plan on kind of hanging out at your house, maybe have the grandkids over, do you plan on sitting in your porch or reading a book or gardening and things like that? The amount of income that you would need is going to be significantly different based on those two different types of life. You also want to keep your average life expectancy in mind.
How long you have?
The average life expectancy in the United States is 79 years old. Now we know that women live a little bit longer than men, and then your own genes will help you determine, you know, how long you believe that you would live based on just how long your grandparents lived and your great grandparents and things like that.
Are you healthy? Are you worried? Your eating habits? How much exercise you get? All these things would come into life expectancy. Generally, if you want to play it safe, I would just say plan to live to a hundred years old. If you live to a hundred, and then you put a financial plan in place that allows you to be able to maintain your lifestyle to a hundred, then you should feel really good about your retirement income.
What makes a good retirement income can also differ by age. Someone who is 55 to 59 would have a meeting household income of $81,500. That is going to be the highest earning potential that most of us have. We’re just about to retire. So we’ve already worked our way through the corporate ladder and we’re usually at a pretty high level position.
When your income is highest
So no surprise that the meeting income would be the highest in your retirement from 55 to 59. That number lowers to 70,000 for households that are 60 to 64. It is 60,000 for households, 65 to 69, 53000 for households, 70 to 70. And then lowers to 37,000 for household 75 and older. So the thought could be twofold on the one end you could say, okay, well, obviously I’m working, I’m generating an income.
So I’m able to make my most money from 55 to 59. And then as I get older, I’m living off of the money that I have saved up that I have stored, or I’m just living off of my investments and my interest or my rental. However you’ve designed your retirement income. And as a result, you end up using a little bit less money. Now, by the time you’re 75, it should be reasonable that you’ve probably paid off most of your expenses.
What retirement income is comfortable for you?
So you may be able to live comfortably off of that $37,000, but keeping in mind, depending on the state and the country that you live in, you may have to make an adjustment on how much you want. This is simply in the median. And that’s just saying that if you line up how much everybody makes. And put it in order from least to the greatest and pick the middle number.
That’s what the median is. So you want to be able to say, okay, based on my situation, I feel like my situation is going to be a little bit more expensive than someone else’s. Well, then you should increase how much money you feel is a good retirement income. If you feel like you’re going to be living a little bit simpler than others, or maybe you’ve gotten rid of all of your bills and you feel like you just don’t have as many expenses as the average person.
Start with 80% of income
Well, then you can lower what would be a good retirement income for you. So usually it’s a great place to start with 80% of your income currently. And that usually takes into consideration the state that you live in and the cost of living and also takes in your lifestyle and consideration. And so both of those are usually already baked in that.
That’s why they usually start you there. And then from there, you can decide whether that makes the most sense for you. Are you going to be moving? So do you need a little bit more, is there a higher cost of living in the state that you’re going to, or the country that you’re going to, or could you have a little bit less because there is a lower cost of living in the state or country that you’re moving to, you would then say, okay. Based on my life expectancy of my family, I expect to live this long. Now, keep in mind. The average life expectancy is 79 years old. So you just plan.
Final thoughts
And like I said, if you’re not sure, and you want to be super safe, just plan to live to a hundred, that’s usually how I do all my financial planning. We just plan to live to a hundred and then everything else is just icing then.
So you would just make your plan like that, and then you should be more comfortable as far as a good retirement income. Now I’m going to link two videos to this for you. One talks about the five risks to most people’s retirements. And then the other one talks about what is the best retirement plan. If you have the question of where does retirement income come from? If I’m not working, then the video of what retirement plan is best for me is going to answer all of those questions for you.
I go through in much detail, each of the different sources of income that people would have in retirement. If you have any additional questions for me, you know, I’m always here for you.
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