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A good monthly retirement income is typically 80% of pre-retirement income; advisors often suggest a range between 70% and a more conservative 90%. Median income for households headed by someone over 65 was $50,290, or $4,191 per month, in 2022 according to the U.S. Census Bureau.
Many people are likely eager to maximize their monthly retirement income. According to the U.S. Bureau of Labor Statistics, in 2021 consumers 65 and over spent an average of $57,818 annually, or $4,818 per month, which was more than the median income for 65-and-up households.
Here are some popular sources of good monthly retirement income and ways to increase that income.
4 common sources of monthly retirement income
1. Social Security
Social Security retirement benefits are typically available to people starting at age 62 if they’ve earned enough work credits (which you earn each year by working and earning income). However, it can pay to wait. The maximum Social Security benefit in 2023 is $4,555 per month if retiring at age 70, but the max is just $3,627 if retiring at full retirement age (which depends on when you were born) and only $2,572 if retiring at age 62.
2. Retirement plans
Some employers may offer plans such as 401(k)s or 403(b)s, into which you can make deposits directly from your paycheck. These plans have tax-advantaged benefits that can give account balances a boost.
In general, you can begin withdrawing from a 401(k) at age 59 1/2, and you're required to start taking withdrawals when you reach age 72 (or 73 if you reach age 72 after Dec. 31, 2022).
This includes financial instruments such as certificates of deposit, stocks, bonds, individual retirement accounts and other sources.
Certificates of deposit, or CDs, are savings accounts for dedicated sums of money for a fixed period of months or years. There are different types of CDs, such as standard, high-yield jumbo and more.
Bonds are loans to companies or governments. They are fixed-income instruments, meaning they pay interest at regular, predictable rates and intervals. That can make them attractive to retirees. You can buy and sell specific bonds yourself, or you can invest in bond mutual funds or ETFs, which are baskets of different bonds.
$6,500 in 2023 ($7,500 if age 50 and older).
Early withdrawal rules
Roth IRAs allow contributions to be withdrawn at any time, but earnings distributed before age 59 1/2 may be subject to a 10% penalty and income taxes. There is also a five-year holding rule for Roth IRA investment earnings.
Unless you meet an exception, distributions from a traditional IRA before age 59 1/2 are subject to taxes and a 10% penalty. This applies to both contributions and investment earnings.
Although less common these days, employers such as the military and the federal government may offer pension plans. Pensions are usually defined benefit plans, where the amount you receive in retirement depends on years worked and earnings over time.
In general, monthly retirement income from a pension can’t exceed either 100% of your average compensation for your highest three consecutive calendar years, or $265,000 (the 2023 threshold), whichever is less. The payments are subject to cost-of-living adjustments.
» Learn more: How much should you save for retirement?
Ways to increase your monthly retirement income
If you’re still working, be sure to take a look at the retirement plans your employer offers. Some employers match the deposits you make to a 401(k) plan.
To maximize the amount of free money you can get from that arrangement, fund your 401(k) at least up to the amount required to capture matching contributions, which is typically between 3% and 6% of your annual salary.
Employer matching arrangements vary but frequently range from 50% to 100% of your contributions, up to that limit.
If you’re under age 50, your maximum allowed 401(k) contribution is $22,500 in 2023; if you’re 50 or older, the max is $30,000 in 2023.
Purchasing a home is an investment and can be valuable during retirement, especially if home prices have risen since you bought the property. The value of your house minus how much you owe on it is called equity. Selling your home and moving to a more affordable place can free up some of that equity for retirement.
Even better, up to $250,000 of capital gains for single filers ($500,000 for joint filers) are typically not subject to federal capital gains tax when selling your primary residence.
A reverse mortgage is a loan against the equity in your home. You receive a lump sum, a series of payments or a line of credit, and you repay the loan when you sell or move out of the home.
You need to be at least 62 and on a fixed income to qualify for this option. You’ll also need to have a low mortgage balance or own the home outright.
Payments from a reverse mortgage typically aren't subject to federal income tax. However, for every dollar you receive from a reverse mortgage, the balance on the loan grows.
» Learn more: Guide to early retirement: How to retire early