The 401(k) account is one of the most common retirement savings accounts that employers offer their workers. Employees are able to contribute pre-tax dollars to these accounts and invest them tax-deferred. Only when withdrawals are made do the account holders pay taxes at their ordinary tax rate.

Employers have the option to offer some kind of matching contribution, usually up to a set percentage of each employee’s salary. Employer contributions are deductible up to a certain point.

With everyone making different salaries and employers having different policies for their 401(k) plans, it’s natural for workers to wonder how much they should save as they approach retirement. While there is no single right answer, available data can help you gauge where you stand.

The average 401(k) balance for retirees age 60 and older

While several companies provide data on the average 401(k) balance, I like to use Fidelity when I can, given the company’s size and reputation in the space.

At the end of 2024, Fidelity looked at 401(k) data from 26,700 corporate defined contribution plans that included 24.5 million participants. The company found that the average 401(k) balance was $246,500 for ages 60 to 64, $251,400 for ages 65 to 69, and $250,000 for ages 70 and over.

Fidelity actually recommends saving much more than this amount. In prior articles, the company has suggested having eight times your annual salary by age 60 and 10 times your annual salary by age 67. With median annual earnings for a full-time U.S. worker above $50,000, Fidelity’s recommendation is far higher than the approximately $250,000 average balance for its plan participants near retirement.

But again, there’s always a difference between advice and reality. Retirees should also understand that an average number among tens of millions of people captures so many different scenarios. Ultimately, retirees should think about the lifestyle they want in retirement and work with a financial advisor or on their own to determine how much they need to support that lifestyle.

President Trump on several occasions during his recent campaign vowed to end taxes on Social Security benefits. Legislation currently working its way through Congress (i.e., the One, Big, Beautiful Bill Act) is built around his policy priorities, but it stops short of fulfilling that specific promise.

Nevertheless, there is good news for retirees on Social Security. The version of the One, Big, Beautiful Bill (OBBB) that recently passed the Senate includes provisions that would increase after-tax income for millions of seniors. Read on to learn more.

President Trump’s One, Big, Beautiful Bill includes new deductions for seniors

The OBBB passed the House of Representatives by a single vote on May 22, and an amended version slipped through the Senate by an equally narrow margin on July 1. The bill now returns the House, where lawmakers can either approve it or make changes that would require another Senate vote.

Importantly, while budget reconciliation bills are not permitted to change Social Security, both versions of the OBBB include deductions that would help millions of seniors on Social Security. The recently passed Senate bill includes the following:

• Single seniors (aged 65 and older) can deduct $6,000 from taxable income, and married seniors filing jointly can deduct $12,000 as a couple.
• The full $6,000 per-person deduction is available to single filers with income up to $75,000 and joint filers with income up to $150,000. Beyond those levels, deductions are phased out.

Importantly, the new senior deductions would be additive with other tax breaks, including the standard deduction and existing senior deductions, as detailed below:

• Under current law, the standard deduction is $15,000 for single filers and $30,000 for joint filers. The Senate bill raises the standard deduction to $15,750 for single filers and $31,500 for joint filers.
• Under current law, seniors get an additional standard deduction of $2,000 for single filers and $3,200 for joint filers. The Senate bill leaves those existing deductions in place.

Here’s the bottom line: The Senate bill would bring the total deductions available to seniors to $23,750 for single filers and $46,700 for married couples filing jointly. Those tax breaks are more expansive than the ones approved in the House bill earlier this year, which capped the new senior deduction at $4,000 per person.

The Senate bill would raise after-tax income for 33.9 million seniors by an average of $670

The One Big Beautiful Bill does not eliminate taxes on Social Security benefits, but it does include tax breaks for seniors with modest incomes. The White House estimates the new $6,000 deduction will provide some measure of financial relief to 33.9 million seniors, with an average increase in after-tax income of $670 per person.

Importantly, legislation that entirely eliminated Social Security taxes would have resulted in twice as much savings for seniors, according to The Wall Street Journal. However, 88% of seniors on Social Security will pay no taxes on benefits under the Senate bill, up from 64% under current law, according to the White House. Put differently, 14.2 million seniors that currently owe taxes on Social Security would be exempted from those taxes if the bill becomes law.

All things considered, the Senate bill is a win for seniors on Social Security. It does not completely eliminate taxes on retirement benefits, but doing so would actually hurt the Social Security Trust Fund and potentially expedite benefit cuts by two years. Instead, the Senate bill provides financial relief for millions of seniors, but it targets individuals with modest incomes rather than doling out across-the-board tax breaks. That’s good news.

American seniors are heavily reliant on Social Security to make ends meet. Six in 10 retirees said their benefits are a major source of income in the most recent iteration of an annual Gallup poll. That’s one of the highest responses since the poll’s inception in 2002.

Considering the huge importance of Social Security to retirees, it’s essential for them to keep as much of their benefits as possible. Unfortunately, for some seniors living in nine states, they could see taxes take a big bite out of their monthly checks. Some retirees could lose up to 10% of their benefits to state taxes, depending on their income and where they live.

How the federal government taxes Social Security

While each state has its own rules and tax rates for Social Security, every American is potentially subject to taxes on Social Security income from the federal government.

The IRS determines how much, if any, of your Social Security benefits are subject to income tax based on a metric called “combined income.” To determine your combined income, take half of your Social Security income and add to it your adjusted gross income and any untaxed interest income. If that number exceeds the thresholds below, up to 85% of your Social Security benefits could count as taxable income.

Data source: Internal Revenue Service.

You might notice that the thresholds for combined income are relatively low. Considering the average retiree collects about $2,000 per month in Social Security, it doesn’t take much to push a married couple into taxable territory. Congress hasn’t updated those thresholds since enacting the laws that set them more than 30 years ago, and there’s no built-in inflation adjustment. As a result, more and more retirees are facing Social Security taxes at the federal level each year.

But the challenge is even worse for retirees living in the following nine states. They could be subject to state taxes as well.

Nine states that could take some of your Social Security benefits

Several states have eliminated taxes on Social Security benefits in recent years, including Kansas, Missouri, and Nebraska. There remain just nine states that still tax a portion of residents’ Social Security benefits, depending on their income. If you live in one of them, it may be worth exploring your options to avoid taxation on your benefits, so you can keep more money for your retirement budget.

Here are the basics.

Colorado: Taxpayers 65 or older or those with an adjusted gross income below $75,000 for individuals or $95,000 for joint filers are exempt from taxes on Social Security. Those with higher AGIs under age 65 can deduct up to $20,000 of the amount of Social Security income included on their federal tax return. Any amount above that will incur a 4.4% tax.

Connecticut: Taxpayers with adjusted gross income below $75,000 for individuals or $100,000 for joint filers are exempt from taxes on Social Security. Taxable benefits are limited to 25% of the total received for those with higher AGIs. The applicable tax rate ranges from 4.5% to 6.99%, depending on income.

Minnesota: Taxpayers with adjusted gross income below $84,490 for individuals and $108,320 for joint filers are exempt from taxes on Social Security. Every $4,000 of AGI above those thresholds increases the amount subject to taxes by 10% of the total benefits included on your federal income. The applicable tax rate ranges from 6.8% to 9.85%.

Montana: Any amount of benefits included in your federal income is also taxable at the state level. Taxpayers over the age of 65 receive an additional $5,660 deduction on their state taxes. The tax rate ranges from 4.7% to 5.9%.

New Mexico: Taxpayers with adjusted gross income below $100,000 for individuals and $150,000 for joint filers are exempt from taxes on Social Security. All other taxpayers must pay income tax on any amount included in their federal income. The applicable tax rate ranges from 4.9% to 5.9%.

Rhode Island: Taxpayers with adjusted gross income below $104,200 for individuals and $130,250 for joint filers are exempt from taxes on Social Security. All other taxpayers are taxed on any benefits included in their federal income. The applicable tax rate ranges from 4.75% to 5.99%.

Utah: Any Social Security income included in your federal taxes is also subject to state taxes. Taxpayers with adjusted gross income below $45,000 for individuals and $75,000 for joint filers qualify for a tax credit offsetting the taxes on Social Security included in their federal income. Those above the threshold may qualify for a partial credit. The applicable tax rate is 4.55%.

Vermont: Taxpayers with adjusted gross incomes below $50,000 for individuals and $65,000 for joint filers are exempt from taxes on Social Security income. Those within $10,000 of each threshold will qualify for a partial deduction. Those with AGIs exceeding $60,000 for individuals and $75,000 for joint filers will owe taxes on any amount of benefits included in their federal income. The applicable tax rate ranges from 3.35% to 8.75%.

West Virginia: Taxpayers with adjusted gross incomes less than $50,000 for individuals or $100,000 for joint filers are exempt from taxes on Social Security. Those with higher AGIs will owe taxes on 35% of any Social Security income included as part of their federal income. The applicable tax rate ranges from 4.44% to 4.82%. However, West Virginia will no longer tax Social Security income for anyone starting in 2026.

Planning your retirement isn’t just about avoiding taxes

While taxes can be a big drag on your retirement budget, they shouldn’t dictate where you retire. If you want to retire to the mountain communities of Colorado or Utah, potential taxes on your Social Security shouldn’t hold you back. The cost of traveling to the mountains multiple times per year will likely outweigh the increased taxes of living there.

You should also consider things like the cost of living, community, and proximity to family and friends in your retirement decision. If you optimize for those factors, it’s probably worth paying a little more in taxes.

Importantly, there are ways to avoid taxes on Social Security benefits by planning ahead. You can position your retirement and brokerage accounts to minimize your adjusted gross income, by taking capital gains and converting pre-tax retirement accounts to Roth accounts before starting Social Security. You’ll have to weigh the long-term benefit to these strategies, as those moves usually result in a higher tax bill upfront. A tax professional or financial planner can help.

On top of all that, you might find that your retirement destination changes its Social Security tax policy in the near future. West Virginia will eliminate the tax next year, and several other state legislatures have proposed bills to eliminate the tax as well. So you might be basing a decision on a policy that you’re bound to outlive.

Retirement is something you hear about often throughout your working life. It’s easy to push those retirement thoughts away during your younger years, but waiting too long to get serious about your financial future can have serious consequences.

The typical U.S. household has median retirement savings of just $200,000 at age 65.

In other words, someone using the popular 4% rule is trying to live off just $8,000 in their first year of retirement. Not many people can live off of that, so it’s safe to say there is a financial crisis among older Americans.

Just how much are people falling short of where they should be? There is no single number, but investment management company T. Rowe Price lays out some reasonable guidance to help gauge how much you should have invested throughout your working years.

You should try to have 7.5 to 13.5 times your salary invested by age 65

T. Rowe Price lays out milestones, depending on your age:

• 1.5 to 2.5 times your salary at age 40
• 3.5 to 5.5 times your salary at age 50
• 6.0 to 11.0 times your salary at age 60
• 7.5 to 13.5 times your salary at age 65

Given the median household income in the U.S. is approximately $80,000, a typical household retiring at 65 should have between $600,000 and $1.1 million invested, according to the above guidelines. That’s three to five times what a typical household actually retires on.

Why the wide range? Everyone’s situation is different. Your lifestyle, location, income, and personal finances can all directly impact how much you might need. These milestones also also based on the previously mentioned 4% rule and a 30-year retirement period.

Younger workers shouldn’t depend on Social Security

This challenge is going to evolve and impact younger generations differently. Social Security currently provides a safety blanket to retirees. The average monthly Social Security benefit is approximately $2,000, and millions of Americans depend on that money.

However, Social Security is on an unsustainable path. Due primarily to an aging population, the number of beneficiaries is growing faster than that of workers contributing via payroll taxes. The Social Security Board of Trustees estimates the program currently has less than a decade of solvency left at this pace.

It sounds bad, but don’t panic. It’s unlikely Social Security goes away entirely. If it does reach insolvency, benefits will decline to match incoming tax revenue.

Between now and then, the government must take action to extend Social Security’s solvency. It could:

The bottom line? It’s more important than ever to take your retirement into your own hands. Social Security will look different in 10, 20, or 30 years.

Two things you can do right now to start heading in the right direction

Even if you can’t build the retirement portfolio you hoped for, any progress is better than where you would be otherwise.

The two most important things within your control are how much you spend and how much you invest.

If you don’t currently budget your money, now is a good time to start. Track your expenses and see where you may be able to cut back if you need to free up some cash. It’s also a good idea to focus on paying off high-interest debt, such as credit cards.

Then, focus on your retirement portfolio. If you have a 401(k) plan, check with your employer to see whether it offers an employer match. There are other tools and options to save with, even if you don’t have access to a 401(k).

If you’re feeling a bit overwhelmed, that’s OK. Finances can be complicated, and nobody is born an expert. Consider consulting with a certified financial planner who can help you evaluate where you stand and build a plan suited to your specific needs.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.

Retirees on a fixed income often need every dollar they can get to cover their costs. That’s one reason why so many seniors are eager to find out how much their Social Security benefits will increase each year.

Social Security benefit payments go up in most years because they must do so to keep pace with rising prices. Since the cost of goods and services increases over time, retirees would quickly face financial trouble if their benefit checks didn’t increase, too.

Unfortunately, while seniors can expect to see a benefits increase in 2026, it is almost assuredly going to be a disappointing one. Here’s why retirees on Social Security may be mad when they see their checks next year — and also why they shouldn’t be overly concerned.

Retirees are not going to like next year’s Social Security raise

Retirees are almost sure to be disappointed in their Social Security raise in 2026 because it won’t be a very big one relative to the amount that benefits have risen in recent years. In fact, here’s what COLAs have looked like lately:

• 2020: 1.6%
• 2021: 1.3%
• 2022: 5.9%
• 2023: 8.7%
• 2024: 3.2%
• 2025: 2.5%

Since the pandemic ended, retirees have seen some of the highest COLAs in years. Anyone who retired in the last couple of years may expect that this is the norm, and even longtime retirees have likely grown accustomed to getting big benefit increases.

That’s changing next year, though. While we won’t know the exact cost-of-living adjustment until all the numbers from the third quarter are in, it’s possible to make projections based on current changes so far this year to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That’s the price index used to set COLAs, as the annual benefits increase is based on year-over-year price changes as measured by the CPI-W.

In mid-May, the Senior Citizens League used CPI-W data to project what the COLA will look like next year. According to this senior advocacy group, the estimate for the 2026 COLA is 2.4%. This is a slight increase from the prediction last month, which was 2.3%. If this number holds and retirees get just a 2.3% or 2.4% raise, it will be the lowest since 2021.

Of course, this is not yet the official announcement, and things could change. But all evidence suggests that retirees will not see their Social Security checks go up very much next year at all — and this is probably going to disappoint many who were counting on a bigger payment being deposited when 2026 rolls around.

A low benefits increase may not be a cause for disappointment

While it’s understandable that seniors would be upset about seeing only a small increase in their Social Security payments, when you look at the big picture, this may not be such a bad thing. See, COLAs are directly based on inflation, so the raises were high in the past few years because inflation was surging.

In general, retirees tend not to benefit from periods of high inflation. In fact, it typically hurts them because their savings may lose ground, and many have conservative investment portfolios that struggle to beat high rates of inflation, as retirees can’t afford to take too many risks with money they’re relying on for support.

So, since a smaller COLA means that inflation isn’t as big of an issue, retirees could end up better off in the end, as their savings stop losing buying power so fast — even if it does mean their Social Security benefits increase is smaller. Retirees should start preparing for the reality of a smaller COLA sooner rather than later, before that first check of 2026 hits their account and they find themselves facing an unpleasant surprise.

President Donald Trump had been touting the announcement of tariffs, which he said will restore America’s manufacturing base and improve the country’s economic security and standing over time. However, the stock market was still caught flat-footed by just how aggressive and expansive the tariffs Trump proposed on April 2 were.

Since then, stocks have suffered their sharpest sell-off since early in the COVID-19 pandemic, five years ago. As the market extends its weeks-long decline, many retirees are struggling as they watch their retirement accounts suffer rapid losses. Meanwhile, they may also be wondering how the now new tariff policies will impact their cost of living.

Here’s my advice to retirees looking for stability in this volatile market.

Move slowly to avoid making decisions you might regret

I can’t emphasize enough how fluid the tariff situation is.

The Trump administration says that tariffs and tax cuts will generate hundreds of billions of dollars in annual revenue while stimulating the economy for working-class Americans. That sounds good, in theory, but a dramatic pivot from established policy comes with near-term risks, such as higher prices, reduced consumer spending, and business headwinds.

Therefore, many aspects of this situation could change at any time. Countries could negotiate lower tariffs (or none), or Trump could pivot. Even if the new tariffs largely remain in place as announced, nobody knows for how long or precisely what impact they will have on the economy. While I don’t want to oversimplify this, it’s like an experiment with wide-ranging potential outcomes. With so much uncertainty, the market is spooked, which explains the S&P 500‘s 10.5% sell-off on April 3 and 4.

Those market sessions were ugly, but it’s also just two days. The worst mistake would be taking drastic action only for the situation to de-escalate. In this situation, it’s probably wise to move slowly.

Check up on your finances and your investment strategy

At the same time, you shouldn’t ignore the situation. So instead of rushing to action, take this opportunity to evaluate your finances and your nest egg.

Prolonged tariffs could increase prices for goods and services, so you may want to look at how that would impact your living expenses. Consider how tariffs might affect your purchasing decisions. If you’re in the market for a new vehicle, for example, you can look into which companies the tariffs will impact the most.

Additionally, conduct a checkup on your investment portfolio. Review what you own and decide whether you’re taking more risk than you’re comfortable with. Diversifying your portfolio is about more than just owning lots of stocks. A retiree’s portfolio might include a mix of exchange-traded funds (ETFs), stocks, bonds, real estate investment trusts, international mutual funds, and hard assets like gold.

Again, you don’t want to act rashly, but reevaluating your portfolio with a focus on risk management can help you prepare for whatever happens. Your goal in retirement is to protect and preserve your wealth, not necessarily to maximize your investment returns. That goes double in such a volatile market. If you’re feeling stuck, don’t hesitate to consult a professional financial advisor to help formulate a personalized plan.

Steady the ship, then look for opportunities

I’ll repeat: Your top priority is getting your financial house in order.

Once you feel you have a handle on your financial situation, you may want to seek out opportunities. Could the markets continue to decline from here? Absolutely. However, I wouldn’t try to predict how long or how much. History has shown stock market downturns happen, but the market has always recovered and seen brighter days.

This time, it’s fears over tariffs and a trade war. But as a retiree, you can probably remember how scary the various recessions, wars, and other crises throughout your lifetime felt in the moment. Yet in hindsight, they ended up being excellent buying opportunities. This will likely prove to be a similar situation, and you can act on it according to your risk tolerance and budget.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.