What Does the Average Person Have When They Retire?

According to Investopedia and Federal Reserve data, the median U.S. household retirement savings is often lower than anticipated, yet many navigate retirement successfully. This raises an important question: what does the average person have when they retire, and what does this mean for a secure and fulfilling life?

Quick Summary

The average retiree typically possesses a combination of income sources, including Social Security benefits and distributions from savings, balanced against major expenses like housing and healthcare. However, the true picture of retirement includes critical non-financial components such as purpose, social connection, and health.

Key Points

• Median vs. Average Savings: Median retirement savings are often much lower than the average, indicating many retire with less money than typically reported.

• The 'Big Three' Expenses: Housing, healthcare, and transportation are typically the largest retiree expenses, even with a paid-off mortgage.

• Social Security is a Lifeline: Social Security is a crucial income source for most, replacing only a portion of pre-retirement income.

• Debt is a Common Burden: Many retirees carry debt, such as mortgages and credit card balances, straining fixed incomes.

• Non-Financial Planning is Vital: A fulfilling retirement requires planning for purpose, relationships, and health to combat boredom and isolation.

• Longevity and Inflation Risks: People live longer, requiring savings to stretch further, while inflation erodes purchasing power.

The Financial Landscape of Retirement

While the term “average” can be misleading, data from sources like the Federal Reserve provide insight into what many retirees can expect. A typical retiree's financial position is composed of a diverse mix of assets and income streams that must cover a new set of living expenses.

Income Sources in the Golden Years

Upon retirement, your steady paycheck is replaced by a portfolio of income sources, including:

• Social Security Benefits: This is a cornerstone for most retirees, potentially replacing around 40% of pre-retirement income. Delaying benefits can increase monthly payments.
• Retirement Savings Accounts: This includes 401(k)s and IRAs. Balances vary widely, with median often lower than average. Withdrawals become a primary income source.
• Pensions: A reliable source of guaranteed income for those who have them.
• Other Income: May include rental income, part-time work, or withdrawals from brokerage accounts.

Major Expenses that Shape the Retirement Budget

Retirees face different financial pressures. While some costs disappear, new or higher expenses emerge, especially due to inflation and increased longevity. Top expenses for retirees typically are:

• Housing: Remains the largest expense, covering taxes, insurance, utilities, and maintenance. Unexpected repairs can be significant.
• Healthcare: Needs and costs rise with age. Medicare doesn't cover all expenses, leading to out-of-pocket costs for premiums, copayments, and services like dental or long-term care.
• Transportation: A significant budget item covering vehicle costs, insurance, and fuel. Travel is a large discretionary expense for many.

The Challenge of Debt in Retirement

Many retirees carry debt, including mortgages, credit card balances, and even student loans, which can erode a fixed income. Strategies include consolidation, refinancing, and debt management programs. Downsizing or part-time work may be necessary.

Beyond the Finances: What Else Do Retirees Have?

A fulfilling retirement requires more than just finances. Non-financial assets and considerations are equally important:

• A New Identity and Purpose: Finding new ways to feel a sense of purpose through hobbies or volunteering is important after leaving a career.
• Relationships: Retirement offers more time for connections with family and friends, but proactive effort is needed to avoid isolation.
• Health and Well-being: A healthy lifestyle is crucial for longevity and quality of life, and managing health also impacts finances.
• Location and Lifestyle: The choice of where and how to live is a significant decision affecting finances and quality of life.

A Comparison of Retirement Savings Vehicles

Feature	401(k)	Traditional IRA	Roth IRA
Employer Match	Many employers offer a match.	No employer match (some brokers may offer).	No employer match.
Contribution Limit	Much higher annual limits.	Lower annual limit than 401(k), combined across all IRAs.	Lower annual limit, same as Traditional IRA.
Tax Treatment (Contribution)	Pre-tax contributions lower current taxable income (traditional 401(k)).	Tax-deductible contribution possible depending on income and workplace plan.	After-tax contributions, no immediate tax deduction.
Tax Treatment (Withdrawal)	Distributions taxed as ordinary income (traditional 401(k)).	Distributions taxed as ordinary income.	Qualified withdrawals are tax-free.
RMDs	Yes, at age 73 for Traditional 401(k)s.	Yes, at age 73.	No required minimum distributions.

Planning for a Secure Retirement

1. Start saving early and consistently; automate contributions.
2. Take advantage of employer matching programs.
3. Build a diverse portfolio to balance risk and growth; some growth is needed to outpace inflation.
4. Consider both traditional and Roth accounts for tax diversification.
5. Strategically plan your Social Security claiming age to maximize benefits.
6. Prioritize paying off high-interest debt before retirement.
7. Plan for non-financial aspects like time use and social connections.

A Broader Definition of Retirement Wealth

What the average person has when they retire is a blend of financial resources and life circumstances. This includes Social Security, varying retirement account balances, and potentially real estate equity, combined with the freedom to define purpose, more time for relationships, and a focus on health. Successful retirement is about both financial savings and the life built.

For more information on Social Security benefits and planning, visit the official Social Security Administration (SSA) Website.

Conclusion

What the average person has when they retire is a multi-faceted picture of financial and non-financial assets. While savings and income sources are key, challenges like debt, healthcare costs, and inflation exist. A secure retirement requires financial planning, understanding expenses, and deliberately building a fulfilling life outside of work.

Frequently Asked Questions

What is the median amount of savings the average person has at retirement?

According to Investopedia, referencing Federal Reserve data, the median household retirement savings is considerably lower than the average, around $64,000 in cited data, though balances vary significantly by age and income.

Besides savings, what income sources do most retirees have?

Most retirees rely on a combination of Social Security benefits, distributions from retirement accounts (401(k)s, IRAs), and potentially pensions or part-time work income.

What are the biggest expenses for the average person in retirement?

Housing (taxes, maintenance), healthcare (costs rise with age), and transportation are typically the largest expenses for retirees.

Is it common for people to have debt when they retire?

Yes, many enter retirement with debt like mortgages, credit cards, or student loans, which can strain a fixed income.

What happens if a retiree's savings run out?

If savings run out, retirees primarily rely on Social Security and other fixed income, potentially requiring a reduced standard of living, cutting expenses, or seeking part-time work.

What are some non-financial things that contribute to a successful retirement?

Successful retirement is linked to having purpose, maintaining social connections, and focusing on health and well-being through activities and hobbies.

How can one estimate their income and expenses for retirement?

Track current spending and adjust for expected retirement changes (e.g., lower commuting, higher healthcare). Use online calculators to estimate future income needs against potential Social Security and savings.