Retirement planning is essential to secure your financial future and live a comfortable lifestyle. However, so many struggle with knowing how and what to plan for. What is the average monthly retirement income? At Reef Point, we get this question often as clients try to ascertain how to use a deferred sales trust to supplement retirement income from their 401Ks or pensions.
What you and your partner need for retirement depends on numerous factors, including where you want to live, lifestyle preferences and financial obligations. Often, Social Security, pensions and retirement accounts aren’t enough to ensure you can live the life you desire in your golden years. Let’s explore how much you might need to retire comfortably, what the average person pulls down each month during retirement and factors to consider as you plan.
What Is the Average Monthly Retirement Income?
According to the Bureau of Labor Statistics, the average annual income in 2021 for those between 64 and 74 was $59,872 after taxes. For people aged 75 and up, income dropped to $43,538. However, the rate of expenditures compared to income levels indicates that many were either just making ends meet or spending more than they earned, as mean expenses were $56,435 for the younger age group and $45,820 for the older group.
The problem with basing your retirement income on the average for the U.S. is that averages vary considerably across the U.S. For example, if you anticipate moving from a mid-sized city in a Midwestern state, such as Illinois, and moving to California or even Florida, you must consider the higher cost of living in your preferred retirement location. The average retirement income in California is an estimated $1.46 million annually, while in Illinois, it’s $882,770. Though Florida’s cost of living is lower than California, at $927,008, it’s still higher than Illinois’s.
Averages also don’t tell you what it would take to live comfortably based on your current and anticipated lifestyle choices. If you and your spouse anticipate downsizing from the home you raised your children to a small bungalow or condo, you might not need as much to live the life you envision. However, you may need considerably more if you plan to travel the world.
How Much Income Do Couples Need?
If you are planning for retirement with your significant other, you need to determine what it takes for two to tango during their golden years. On the one hand, two incomes reduce individual burdens for housing expenditures. On the other, you are more at risk of incurring medical expenses.
What is the average monthly retirement income for retired couples? If both people have retirement income sources, the average for both is often higher than twice that for single incomes. In 2021, the mean income for married couples aged 65 and older was $108,226. How much higher depends on what you both earned during your lifetimes and your sources of retirement income.
Though your combined retirement income might be double the average for an individual in your area, your overall expenses will likely be higher than if you were single. The more you plan for what you want your lives to look like after you leave the workforce, the better you can prepare, including implementing strategies to boost your retirement income.
What Factors Impact What You Need for Retirement?
Though the general rule of thumb is to aim to bring in between 70% and 90% of the income you earn before you retire, several factors impact what you might need, including:
- Geographic location
- Housing choices
- Current and future health status
- Recreational preferences
- Financial obligations, including debts
- Age you plan to retire
You should also consider whether one or both will work part time after retirement. Additionally, inflation and overall cost of living increases impact how far your retirement income will stretch.
Tax and Government Program Considerations
There are two other considerations that you have little control over but need to consider, nonetheless. Usually, when people ask, “What is the average monthly income?” they don’t think about how changes in tax laws and government programs might impact what they need when they retire.
Tax laws change regularly, with rates ebbing and flowing between administrations and depending on economic conditions. Predicting future tax laws is challenging, though it’s better to anticipate increases when planning for retirement.
Many seniors count on government programs such as Medicare during their retirement. Changes to these programs can significantly impact your out-of-pocket expenses. Furthermore, if you anticipate including Social Security as a retirement income stream, you may find yourself low on cash, as the Social Security Board of Trustees expects shortages in the S.S. Fund by 2037.
How Can You Boost Your Retirement Income?
The best way to plan for a comfortable retirement is to implement strategies that provide income that supplements Social Security, pensions and retirement plans.
Non-Employer Tax Savings Retirement Accounts
Even if your employer offers a pension or 401K retirement account, you can invest in a non-employer tax savings retirement account. Roth and traditional IRAs are both options. Any investments you make (up to the federal limit) are not taxed for as long as they remain in your account.
When you invest in annuity companies, you essentially loan an annuity company money for a period of time. A short-term annuity begins repayment within a year, while long-term annuities may hold off payments for several years.
Deferred Sales Trust
If you have highly appreciated assets, a deferred sales trust offers a tax-advantaged, long-term retirement income. Rather than selling the asset for immediate cash (which could yield a significant capital gains tax), you sell the asset to the DST in exchange for a secured installment note. The DST then sells the asset to a buyer, and the sales proceeds are usually invested into income-generating investments that secure your promissory note. You and the trustee determine when you want to begin receiving payments from the trust and how much you will receive each month.
Who Can Help You Set Up DST?
Reef Point’s sole function is deferred sales trust administration. We have the experience and expertise to help you convert a highly appreciated asset into a retirement income stream using a DST. Get in touch with our office today to learn more about what we can do for you.