Demystifying the Average: Mean vs. Median Income
When discussing the average income for retirees over 65, it's crucial to understand the difference between mean and median. The mean, or true average, is calculated by adding all incomes and dividing by the number of people. This figure can be skewed upward by a small number of very high earners. For instance, recent reports show the mean annual income for U.S. adults 65 and older was approximately $83,950.
Conversely, the median income represents the middle point of all incomes, meaning half of the population earns more and half earns less. The median income for this same group was significantly lower, at $54,710. The median offers a more realistic picture of what a 'typical' retiree earns. Both figures are important for financial planning, but the median more accurately represents the average lived experience for the majority of seniors.
Primary Income Sources for Retirees
Retirement income is rarely from a single source. Most seniors rely on a blend of different financial streams to fund their lifestyles. The combination of these sources determines a retiree’s total income and their overall financial security. According to the Pension Rights Center, the most common sources include:
- Social Security: The backbone of most retirement plans. For many, this is their largest and most reliable source of income. In January 2025, the average monthly Social Security retirement benefit was around $1,976. However, as the Social Security Administration notes, these benefits were designed to supplement, not fully fund, retirement.
- Pensions and Defined Benefit Plans: While less common for younger workers, many current retirees receive income from traditional pensions. These plans provide a steady, reliable monthly check and can significantly boost a retiree's income.
- Retirement Accounts: For those who planned ahead, income is drawn from accounts like 401(k)s and IRAs. Withdrawal strategies and investment returns from these accounts play a vital role in financial health during retirement.
- Personal Savings and Investments: This includes income from stocks, bonds, certificates of deposit (CDs), and other personal savings. These assets provide a supplement to more fixed income streams, though they are also subject to market fluctuations.
- Earnings from Work: Many seniors choose to or must work part-time in retirement. This can be a significant source of supplementary income and provides social benefits as well.
Factors That Influence Retiree Income
Several factors can cause a retiree's income to vary significantly from the national average, making personalized financial planning essential.
Age: Income often decreases with age. Data from the Census Bureau and Empower shows that for households led by someone aged 65-69, the median income is $63,330, but drops to $45,440 for those 75 and over. This trend is often due to the depletion of savings and investments over time.
Gender: There is a notable gender gap in retirement income. The Institute for Women’s Policy Research found that the gender gap in retirement income was larger than the earnings gap in 2021. Women often have lower lifetime earnings, smaller savings, and lower Social Security benefits than men, putting them at higher risk of poverty in retirement.
Location: The cost of living varies dramatically across the country, as does the average retirement income. States in the Northeast and West Coast often have higher incomes, while Southern and Midwestern states tend to have lower averages. Retiring in a lower-cost state can significantly stretch a fixed income.
Health: Poor health can impact a retiree’s ability to work and can also lead to higher out-of-pocket medical expenses, which are often not fully covered by Medicare. Long-term care costs can quickly deplete savings.
The Impact of Inflation on Retirement
Inflation is a persistent threat to retiree financial security. It systematically erodes the purchasing power of money over time. For example, what cost $100 today could cost $127 in ten years, assuming 3% average inflation. While Social Security benefits include an annual Cost-of-Living Adjustment (COLA), this may not fully keep pace with rising costs, especially for essentials like healthcare, which often inflate faster than average. This makes it crucial for retirees to find ways to generate income that outpaces inflation.
Planning for a Secure Financial Future
Beyond knowing the statistics, proactive planning is the most effective way to secure a stable retirement. This includes budgeting for expenses, building an emergency fund, and wisely managing your assets.
How to prepare for retiree expenses:
- Housing: Consider paying off your mortgage before retirement to reduce monthly expenses. You might also consider downsizing or relocating to a more affordable area.
- Healthcare: Budget for potential out-of-pocket medical costs beyond what Medicare covers. HSAs, if eligible, can be an effective way to save for future medical needs.
- Transportation: While commuting costs disappear, expenses for car maintenance and travel remain. Some may opt for ride-hailing services or public transport to save money.
- Taxes: Understand the tax implications of withdrawing from different retirement accounts to minimize your tax burden in retirement.
Comparing Income and Spending
Understanding how your income compares to average spending can help you create a realistic budget. The Bureau of Labor Statistics reported that U.S. households led by someone 65 or older spent an average of $60,087 in 2023. This figure is important to contextualize income data.
| Age of Household | Median Annual Income (Household) | Average Annual Expenditures (65+ Households) |
|---|---|---|
| 65–69 | ~$63,330 | $65,149 |
| 70–74 | ~$60,100 | $65,149 |
| 75 and over | ~$45,440 | $53,031 |
Note: Spending data is often aggregated across different age ranges.
This table highlights the potential disparity between median income and average expenses, especially for older seniors, suggesting the need for careful financial management and additional income sources.
Conclusion
While the average income for retirees over 65 provides a useful benchmark, it's not the full picture. The median income, typically lower than the mean, provides a more representative measure of a typical retiree's financial position. Retirees must consider the various sources of their income, from Social Security and pensions to personal savings, and plan for significant expenditures like healthcare and housing. Factors like age, gender, location, and the persistent effect of inflation all play a crucial role. Proactive financial planning, including creating a realistic budget and exploring options to boost income, is essential for ensuring financial security throughout the retirement years.
Learn more about retirement benefits from the official Social Security Administration website.
