The shift from a full-time career to retirement can feel like both a victory and a journey into the unknown. How you choose to approach that adventure matters. By reading up on the average retirement income by state, the tax implications of retirement income, and typical expenses for older Americans, you can make educated decisions for your future.
The Problems Facing Retirees
Concerns over how to navigate finances in retirement are nothing new. But the factors impacting retirement income needs look a bit different now than they did a generation or two ago.
Today, Americans tend to stay in the workforce longer but are living longer, too. The average life expectancy in the U.S. rose from just 52 in 1920 to over 78 in 2020. This can put financial pressure on retirees and it can strain government programs. Social Security benefits, for example, may only be payable in full until the year 2037 due to dwindling funds.
The possibility that Social Security funds could soon run short is worrisome enough. But there are other problems facing Americans as they transition from career life to retirement.
- Even if Social Security is available, the current system doesn’t provide enough coverage to fully account for most people’s regular expenses. Social Security also fails to consider differences in the cost of living between locations. Retirees who live in an area with higher costs get the same payout as individuals in more affordable areas (assuming other factors like lifetime earnings, full retirement age, and primary insurance amounts are the same).
- Inflation can scuttle carefully laid retirement plans. Many savings products, such as a bank savings account, can be negatively affected by inflation, with variable interest rates compromising account growth. Other products, like a certificate of deposit (CD), aren’t as affected by fluctuating interest rates but also don’t adjust payouts to match inflation rates. In either case, the outcome could leave retirees with a significant income vs. expense deficit.
- Unexpected expenses are a fact of life at any age, but they can be especially detrimental for retirees on limited income. Medical bills, emergency home repairs, the death of a spouse—without a financial cushion, these scenarios can devastate your retirement income strategy.
Average Retirement Income in the United States
In 2022, the average before-tax income of retired individuals in the United States was just $48,780. A whopping 65.9% of that income came from retirement plans and Social Security benefits. These numbers might leave you feeling unsure, especially if you haven’t maximized your 401(k) or may not be eligible for Social Security.
Average Retirement Income by State
Here’s a look at the average income in retirement by state. These numbers were calculated using the U.S. Census Bureau’s American Community Survey (ACS) and salary data reported by Americans aged 65 years and older.
| State | Average Income Per Month | Average Income Per Year | State Tax on Retirement Income* |
| Alabama | $2,074 | $24,896 | No |
| Alaska | $3,002 | $36,023 | No |
| Arizona | $2,394 | $28,725 | Yes |
| Arkansas | $1,831 | $21,967 | Yes |
| California | $2,895 | $34,737 | Yes |
| Colorado | $2,698 | $32,379 | Yes |
| Connecticut | $2,671 | $32,052 | Yes |
| Delaware | $2,607 | $31,283 | Yes |
| District of Columbia (Washington, D.C.) | $3,590 | $43,080 | N/A |
| Florida | $2,513 | $30,158 | No |
| Georgia | $2,330 | $27,961 | Yes |
| Hawaii | $2,691 | $32,294 | No |
| Idaho | $2,063 | $24,752 | Yes |
| Illinois | $2,602 | $31,223 | No |
| Indiana | $1,712 | $20,542 | Yes |
| Iowa | $1,859 | $22,308 | Yes |
| Kansas | $1,941 | $23,294 | Yes |
| Kentucky | $2,035 | $24,419 | Yes |
| Louisiana | $2,209 | $26,512 | Yes |
| Maine | $2,129 | $25,545 | Yes |
| Maryland | $2,978 | $35,732 | Yes |
| Massachusetts | $2,600 | $31,198 | Yes |
| Michigan | $2,032 | $24,389 | Yes |
| Minnesota | $2,199 | $26,385 | Yes |
| Mississippi | $1,946 | $23,347 | No |
| Missouri | $2,010 | $24,125 | Yes |
| Montana | $2,122 | $25,463 | Yes |
| Nebraska | $1,985 | $23,821 | Yes |
| Nevada | $2,598 | $31,171 | No |
| New Hampshire | $2,200 | $26,395 | No |
| New Jersey | $2,555 | $30,660 | Yes |
| New Mexico | $2,476 | $29,707 | Yes |
| New York | $2,527 | $30,326 | Yes |
| North Carolina | $2,110 | $25,324 | Yes |
| North Dakota | $1,946 | $23,347 | Yes |
| Ohio | $2,193 | $26,316 | Yes |
| Oklahoma | $1,997 | $23,963 | Yes |
| Oregon | $2,380 | $28,565 | Yes |
| Pennsylvania | $2,033 | $24,392 | No |
| Rhode Island | $2,260 | $27,118 | Yes |
| South Carolina | $2,186 | $26,227 | Yes |
| South Dakota | $2,002 | $24,020 | No |
| Tennessee | $1,976 | $23,715 | No |
| Texas | $2,289 | $27,471 | No |
| Utah | $2,386 | $28,632 | Yes |
| Vermont | $2,073 | $24,870 | Yes |
| Virginia | $2,942 | $35,306 | Yes |
| Washington | $2,446 | $29,351 | No |
| West Virginia | $1,760 | $21,118 | Yes |
| Wisconsin | $2,115 | $25,378 | Yes |
| Wyoming | $2,205 | $26,465 | No |
Source: Wise Voter Dataset
*Retirement income refers to distributions from employee-sponsored pensions, 401(k) plans, IRAs, and Social Security.
The tax column above refers to state taxes—some states tax retirement income, while others do not. Taxation is based on the state you live in when you accept pension payments, not where the pension or retirement fund was initiated. If you work and start your 401(k) or work pension in a state like New York that taxes retirement income but retire in Nevada, which doesn’t, you’ll follow Nevada’s regulations.
How To Retire Comfortably in Your State
The unfortunate fact for many Americans is that retirement income and the cost of living in retirement are often at odds. In 2022, retirees spent an average of just under $55,000 on household expenditures for the year. With the national average income for retirees hovering just above $48,000, that leaves nearly $7,000 in uncovered expenses.
While you may be able to trim some of your costs, few people can totally eliminate common (and rising) obligations like rent, gas, and healthcare. Instead, the best way forward is to construct a resilient retirement income strategy that provides the right cash flow to give you the financial support you need later on in life.
When To Think About Moving
Relocating to a state with a higher average retirement income doesn’t guarantee you’ll bring in more money. But it could improve your situation if your new state has a lower cost of living or doesn’t tax retirement income.
Building a Multifaceted Retirement Plan
When looking at average retirement income by state, you’re looking at representative figures, not absolutes. By establishing multiple sources of retirement income and saving as much as possible while you’re still working, you can craft a balanced portfolio that reflects your personal goals and preferences.
Here are a few strategies you can use:
- Automate checking-to-savings transfers to divert a portion of your pre-retirement salary to a savings account—preferably high-yield. You can tap into these savings as needed after retirement or use accumulated funds to purchase an annuity.
- Look into FDIC-insured savings products, such as certificates of deposit (CDs) for short- to medium-term growth.
- Explore both employer-backed retirement accounts, such as a 401(k), and private investment options like IRAs to maximize your contributions and tax advantages.
- Assess how much you may receive from Social Security, and decide when you’ll want to start receiving benefits.
- Learn when an annuity is suitable and see which type of annuity might be an ideal fit for your retirement plan.
Note: All guarantees are subject to the claims-paying ability of the insurer.
Consider the Benefits of Annuity Riders
Whether you’re worried about healthcare costs and the rising price tag of long-term care or want to be sure you provide for a surviving spouse, purchasing an annuity with rider(s) may provide the extra security you’re looking for. Options like a cost-of-living adjustment (COLA) rider or a lifetime income benefit rider may give you peace of mind even in the face of inflation or unstable market conditions.
Note: Riders may be subject to eligibility and underwriting requirements, additional premium requirements and/or minimum or maximum coverage amounts. Availability and rider provisions may vary by state.
Mitigate Your Tax Burden
Lowering your retirement tax bill can significantly increase the percentage of retirement income you can actually use. Leveraging tax-advantaged retirement accounts is one way to protect your money. You can also do everything in your power to avoid making early withdrawals—taking money out of your retirement account before the age of 59 ½ could cost you both surrender charges and a 10% IRS penalty levied on top of income taxes.
Note: Any reference to the taxation of annuities in this material is based on Annuitiy.com’s understanding of current tax laws. We do not provide tax or legal advice. Please consult a qualified tax professional regarding your personal situation.
Moving Forward With Your Personalized Retirement Strategy
Creating a financial blueprint for retirement can be a complex task, but it’s also an important one. Start by studying up on the average retiree income, your likely post-retirement expenses, and what type of cushion you’ll need to live comfortably. Then you can put plans in motion that will increase stability and financial flexibility in the future.
Curious how you could meet or exceed the average retirement income in your state using annuities? Reach out to one of Annuity.com’s licensed agents to learn more about predictable income, tax-deferred growth, and the other benefits of annuities.
