Nearly half of all workers say they need $1 million or more to retire comfortably. One third of people who are already retired say they needed less than half a million. Same question, two groups, answers that don't line up at all. The people still working are anxious about hitting a target that the people who already got there say they never needed.
That gap points at a bigger problem with the retirement numbers that get quoted most often, including the average income at age 65. They don't describe most people's real situation.
The average is technically correct and practically useless
The average retirement income for an individual age 65 is about $75,000. If you're anywhere near that, you're probably feeling good, maybe even ahead of the game.
Here's the problem. Put 10 people in a room. Nine of them take home $40,000 a year and one makes $400,000. The average income in that room is $76,000, and nobody in that room makes $76,000. The average doesn't describe a single person standing there.
That's exactly what happens with retirement data. You have the majority of people, and then a small minority earning a large amount that pulls the average up for everyone. The rest of us look at that number and think we're falling behind something that was never real in the first place.
The median is the number that describes you
The median is the halfway point. Half of people come in below it and half come in above. Median household income for Americans age 65 and older is $56,680 a year. For a single person, it drops to around $30,000. That's about $18,000 below the average for a household, and less than half of it for a single person.
It also doesn't hold flat. Census data shows income drops significantly after age 70, so the number keeps sliding as you age.
There's a large gender gap on top of that. Men 65 and older have a median annual income of $35,650. For women it's $29,280. That's over $6,000 a year, every year, across a retirement that could run 20 or 30 years. So when someone quotes the average income in retirement, think twice about it. For most people, the median is the number that matters.
Where that money actually comes from
Social Security is the backbone. Nine out of 10 Americans age 65 and older receive it, and the average monthly benefit is about $2,075, or roughly $25,000 a year. For three out of five retirees, Social Security makes up more than half of total retirement income. About 25% of older adults live in households where it accounts for 90% or more of everything coming in. For a lot of people, Social Security is the entire retirement income.
Then there are pensions. If you have one, you know it, and if you don't, you feel it. The median private sector pension pays around $10,800 a year. Federal pensions are the highest at a median of $27,600, with state and local pensions a little lower at $22,600. Pension access has been shrinking for decades. Most people under age 55 won't have one, and many of the pensions that do exist aren't COLA adjusted, so they stay flat forever while inflation keeps moving.
About 48% of retirees have some income from investments, whether that's selling stocks, dividends, or interest from bonds. The flip side is that 40.6 million Americans have zero access to an employer-sponsored retirement plan. No 401(k), no match, nothing.
Work is the last piece. About 22% of Americans 65 and older get income from a job, double what it was in the 1980s. Some because they want to and some because they have to.
One statistic ties all of it together. Among retirees with one or two major income sources outside of Social Security, 94% report being financially comfortable most of the time. For those relying on Social Security alone, that drops to about 60%. It makes sense, because more income sources usually means more income.
The 80% replacement rule was never based on data
According to the Bureau of Labor Statistics, with the most recent data from 2022, the median retiree household spends $32,088 a year. That figure is a few years old and we've seen a lot of inflation since, but it still shows there's room for the median household between what comes in and what goes out.
Here's something that bugs me. You've probably heard the rule that says you need to replace 80% of your pre-retirement income to have a good lifestyle. It sounds like it came from a research study. It came from the financial planning industry, and it got repeated enough that people assumed there had to be math behind it. The actual data on how retirees spend puts the number closer to 65% to 75%, and for a lot of retirees it happens naturally. You're commuting less, spending less on work clothes, eating out less.
Healthcare doesn't follow that pattern. Healthcare spending has grown faster and faster over the past few decades and it isn't slowing down. Today, 31% of retirees say they're spending more than they can afford, up from 17% in 2020. Inflation is hitting retirees harder than it's hitting workers.
The tax threshold nobody has updated since 1983
Up to 85% of your Social Security benefits can be taxed, and most people don't find that out until it's too late. The IRS uses a provisional income formula: your adjusted gross income, plus any non-taxable interest, plus half of your Social Security benefits. For a single filer, if that number is above $25,000, up to half of your benefits can be taxed. Above $34,000, up to 85% can be. For married couples filing jointly, the thresholds are $32,000 and $44,000.
In 1983, a retired couple with $44,000 in combined income was doing well. Today that's a very modest income, and the thresholds haven't moved. Every year, as wages and benefits rise, more retirees cross a line that was originally drawn for a small group of high earners. It's a stealth tax put in place when Reagan was president, and Congress hasn't touched it since. The new standard deduction running from 2025 to 2028 helps a little, but it doesn't change the threshold.
It gets worse when you pull from traditional retirement accounts. Money out of a traditional IRA or 401(k) is taxed as ordinary income and stacks on top, pushing more of your Social Security into the taxable zone. Roth withdrawals don't count toward provisional income at all, which is one more reason to take a serious look at Roth conversions early.
The question is your monthly gap
A Pew Charitable Trusts report projects that by 2040, 32.6 million retirement-age households will have income below $75,000, with an average cash shortfall of $7,000 a year. At the same time, workers consistently overestimate what they need. Nearly half think it takes $1 million or more. Once people actually retire, only 12% say they needed that much, and one third say they needed less than half a million. Fear of not having enough keeps people working longer than they have to.
The account balance isn't what decides this. What decides it is whether your income covers your expenses. Start by calculating what you actually spend: housing, transportation, food, entertainment, and healthcare, which is the big one. Then build your income floor, starting with Social Security and adding any pension or other guaranteed income on top. Subtract the floor from the expenses. If that gap is small, you're probably in better shape than you think.
Structure is what pays you
Go back to that 94% versus 60% comparison. The structure of your income is what separates those two groups. This is why I spend a lot of time thinking about retirement income that doesn't depend on selling assets. In a down year, your shares are worth less, so you have to sell more of them, and that leaves less to participate in the recovery. That's sequence of returns risk, and a bad year early in retirement can permanently damage a portfolio you spent decades building.
So the question worth asking is which assets can pay you a reliable monthly payment that doesn't depend on what the S&P 500 is doing. Dividend stocks are one option, though they're still tied to the market and companies can cut dividends in a down year. High yield savings accounts move with prevailing interest rates, currently around 3% to 4%, and they're useful for liquidity. Bonds are another, whether government and treasury bonds or municipal and corporate ones.
Then there's one a lot of people haven't heard of: secured mortgage notes. It's essentially being the bank. Money is lent against a piece of real estate, a first position mortgage is recorded against that property through a title company, and the lender receives fixed monthly payments at a set interest rate. Wall Street doesn't talk about it much, because they make their money when your money is invested with them. This can also be done inside a self-directed IRA or a solo 401(k), which a lot of people don't realize. Some of the wealthiest institutions in the world make their money this way.
The structure is what pays you every month, and it doesn't rely on market volatility the way the stock market does.