ⓘ Important Disclosures
All annuity guarantees are subject to the claims-paying ability of the issuing insurance company. Annuities are not FDIC-insured and are not bank products. Variable annuities are securities products regulated by FINRA and the SEC. This content is for informational purposes only and does not constitute financial, tax, or legal advice.
How much do retirees actually earn? And how does that compare to what retirement actually costs where they live? The gap between average retirement income and typical retirement expenses varies enormously by state — understanding both numbers is essential for honest retirement planning.
The National Picture
According to the U.S. Census Bureau's most recent American Community Survey data, the median income for Americans aged 65 and older is approximately $29,000 per year, or roughly $2,400 per month. Mean (average) income is higher — typically around $50,000–$55,000 annually — reflecting the skewing effect of high-income retirees at the top of the distribution.
These figures include all income sources: Social Security, pensions, retirement account distributions, wages, dividends, and other income. For most retirees, Social Security is the largest single component. According to the Social Security Administration, the average retired worker benefit as of early 2025 is approximately $1,907 per month — about $22,884 annually.
Where Retirement Income Comes From
Income Source | % of Retirees Receiving | Median Annual Amount (Approximate) |
|---|---|---|
Social Security | ~90% | ~$22,884 (2025 avg retired worker) |
Defined benefit pension | ~22% (private); higher for government | Varies widely |
Retirement account withdrawals (IRA/401k) | ~40% | Varies by account balance |
Wages / part-time work | ~25% | Varies |
Investment income (dividends, interest) | ~50% | Varies widely |
Annuity income | ~10% | Varies by product and premium |
State-by-State Variation
Average retirement income varies dramatically by state, driven by differences in historical wages (which determine Social Security benefits), pension coverage, investment wealth, and cost of living. States with high concentrations of government workers — federal, military, state, and local — tend to have higher average retirement incomes due to defined benefit pension coverage. States with higher historical wages produce higher Social Security benefits, since the benefit formula is based on lifetime earnings.
State | Approx. Median Retirement Income | Notes |
|---|---|---|
Maryland | ~$40,000+ | High federal/military pension concentration |
New Jersey | ~$39,000+ | High historical wages, strong investment income |
Connecticut | ~$38,000+ | High wealth concentration, financial sector retirees |
Virginia | ~$37,000+ | Federal and military retiree concentration |
Massachusetts | ~$37,000+ | High wages, strong pension coverage |
— National median approximately $29,000 — | ||
Arkansas | ~$22,000 | Lower historical wages, limited pension coverage |
Mississippi | ~$22,000 | Lowest median retirement income nationally |
West Virginia | ~$23,000 | Economic decline, limited employer pension coverage |
New Mexico | ~$24,000 | Below-average wages, high senior poverty rate |
Note: Figures are approximations based on U.S. Census Bureau American Community Survey data. State-level retirement income data is updated periodically; consult the most recent ACS release for current figures.
Income vs. What Retirement Actually Costs
Average retirement income is only meaningful in context of what retirement costs in a given location. A $29,000 annual income may be adequate in rural Mississippi but severely inadequate in San Francisco or Honolulu. The Bureau of Labor Statistics Consumer Expenditure Survey reports that Americans aged 65–74 spend an average of approximately $57,000 annually — nearly double the median retirement income.
The gap is bridged by asset drawdown: retirees spend down savings, home equity, and other accumulated wealth. This is why the adequacy of retirement savings — not just income — matters so much. Retirees without substantial assets beyond Social Security are significantly constrained in high-cost states.
How State Taxes Affect Net Retirement Income
Gross retirement income and net (after-tax) retirement income can differ substantially by state. Key variables: does the state tax Social Security benefits? Does it tax pension income? Does it have an income tax at all? Nine states have no state income tax; others have specific exemptions for retirement income that reduce effective tax rates for seniors well below the statutory rate.
A retiree with $40,000 in annual income — split between Social Security and pension — may owe nothing in state income tax in Florida, Pennsylvania, or Illinois (all of which exempt Social Security and pension income), but owe $1,000–$2,500+ in states that tax both. Over a 20-year retirement, this difference compounds significantly.
Strategies for Closing the Income Gap
For retirees whose income falls short of expenses, the core strategies are: delay Social Security to maximize lifetime benefits (claiming at 70 vs. 62 can increase the monthly benefit by approximately 76%), optimize the sequence of retirement account withdrawals to minimize taxes, consider relocating to a lower-cost or lower-tax state, and evaluate whether guaranteed income from an annuity could replace portfolio withdrawals and reduce sequence-of-returns risk.
Annuities are particularly relevant for retirees in the income gap: they convert savings into guaranteed income at rates that often exceed what systematic portfolio withdrawals can reliably sustain, and they eliminate the risk of outliving the income stream regardless of how long the retiree lives.