Understanding the difference between average and median
When discussing wealth, the terms 'average' and 'median' are often used, but they tell very different stories. The average, or mean, is calculated by adding up all the retirement savings and dividing by the number of savers. This figure can be heavily inflated by the wealth of a small number of very high earners. A more realistic picture for the typical American is the median, which is the midpoint—meaning half of all retirees have saved more, and half have saved less.
Retirement savings by the numbers
As of the most recent data from the Federal Reserve, the average retirement savings for all families is approximately $333,940, while the median is just $87,000. This vast difference highlights the wealth disparity among American households approaching retirement. Looking specifically at the 65-74 age range, the average savings are higher, at around $609,230, but the median is still a modest $200,000. These figures include assets held in various retirement accounts like 401(k)s and IRAs, but also reflect a sobering reality for many.
The multiple sources of retirement income
For most, retirement funding comes from a combination of sources, rather than a single large lump sum. A sound retirement plan involves diversifying your income streams to ensure stability.
Social Security
For many retirees, Social Security is the primary source of income. It's important to understand, however, that it is typically not enough to live on exclusively. As of early 2025, the estimated average monthly Social Security benefit was around $1,975, which is a significant help, but often only covers a portion of living expenses. Financial experts emphasize that Social Security was never intended to be a sole source of income in retirement.
Pensions
Pensions, once a common part of retirement packages, have become less prevalent in the private sector. Today, they are more common for government employees. A pension provides a reliable, fixed income stream for life. However, with fewer workers having access to them, the responsibility for retirement saving falls more heavily on the individual through other means.
Personal savings and investments
This includes contributions to employer-sponsored plans like 401(k)s and personal Individual Retirement Arrangements (IRAs). Personal savings and strategic investing in assets like stocks, bonds, and annuities can provide substantial income. Many financial advisors recommend aiming to save 10% to 15% of your income throughout your working years to build a robust nest egg.
The impact of age and income on retirement funds
Your savings trajectory is heavily influenced by your income and your age when you start. Data clearly shows a positive correlation between higher earnings and higher retirement savings. For instance, a 60-year-old earning $50,000 might have saved between $420,000 and $485,000 on average, while a 60-year-old earning $200,000 could have an average of over $2.2 million.
For those who are behind on their retirement savings, there is a silver lining. Once you turn 50, federal law allows for "catch-up" contributions to 401(k)s and IRAs, meaning you can contribute more to accelerate your savings. Starting or boosting savings during your peak earning years in your 50s can make a significant difference.
Creating a personal retirement plan
Instead of fixating on national averages, the most effective strategy is to create a personalized retirement plan based on your unique circumstances and goals. Here are some key steps to consider:
- Estimate Your Expenses: Don't just assume your spending will drop. Account for your expected costs in retirement, including housing, food, transportation, and, critically, healthcare. Many underestimate the cost of medical care in their later years.
- Determine Your Goal: A common rule of thumb is to aim to have saved 10 times your annual salary by age 67. If you plan to retire earlier or pursue a more luxurious lifestyle, you may need to save more.
- Review Your Asset Allocation: As you get closer to retirement, many people shift their portfolios from a more aggressive, growth-focused allocation to a more conservative one, which helps preserve wealth.
- Maximize Your Income Streams: Explore all your options for generating income, including Social Security, personal savings, investments, and even part-time work or side-hustles.
Comparison of key retirement income sources
| Income Source | Benefits | Considerations |
|---|---|---|
| Social Security | Guaranteed for life, inflation-adjusted | Not enough to live on solely, subject to political decisions |
| 401(k) / IRA | Tax-advantaged growth, investment control | Market volatility risk, withdrawals taxed in retirement |
| Pension (Defined Benefit) | Guaranteed income for life, fixed payouts | Less common today, limited portability |
| Annuities | Steady income stream, market risk mitigation | Limited liquidity, potentially high fees |
| Personal Savings | Complete control, emergency fund access | No tax benefits, inflation risk |
Conclusion: The power of a proactive approach
The question, how much does an average American retire with?, reveals that many are not adequately prepared for their golden years. However, this isn't a story of doom and gloom. It is a powerful reminder that taking a proactive, informed approach to financial planning is crucial. By understanding the different sources of retirement income, recognizing the biases in average statistics, and creating a personalized plan, you can take control of your financial future. Whether you are just starting your career or are nearing retirement, there are always steps you can take to improve your financial readiness. For more resources on planning your financial future, visit SEC Investor.gov.
