Airline Pilot Retirement: What to Know

You can make a lot of money as an airline pilot.

According to the latest Bureau of Labor Statistics data, the median pay for a commercial airline pilot was $171,210. This puts it far above the U.S. baseline of around $75,000, and is particularly good for an industry with a large number of open positions looking aggressively to hire.

You also have to retire at age 65.

Federal law requires general commercial airline pilots to retire by age 65, although there is some discussion of raising the cap to 67. This is expected to lead to a wave of industry retirements in the near future, as more than one-third of all commercial airline pilots are over the age of 50.

If this includes you, here are a few things to consider as you plan your retirement. You can also consider speaking with a financial advisor if you’re interested in professional guidance for your retirement.

Social Security and Early Retirement

Full retirement age for Social Security benefits is set at 67, meaning that as an airline pilot you have to take retirement two years early. While this isn’t a large gap, it’s important to plan for.

If you take Social Security upon retirement, you will reduce your lifetime benefits. For example, if you retire at 65, your benefits will be reduced to approximately 91.11% of what you otherwise would have collected. By contrast, taking full Social Security will require planning for two years without this income, and maximizing your Social Security through delayed benefits can require waiting up to five.

Then, there is your retirement portfolio. As with Social Security, this raises the same concerns as any early retirement scheme. You’ll want to make sure to weigh your options when it comes to your Social Security timing, retirement account withdrawals and any other income sources. Remember that your various income sources are likely to be treated differently when it comes to taxes. A financial advisor can help you build an appropriate funding strategy for your retirement goals.

Working in Retirement

Pilots are required to retire from general commercial aviation, but that doesn’t mean they have to stop working altogether at age 65.

If you aren’t finished working yet, or if you would like to supplement your retirement income and savings, make sure to consider your many options. Airline pilots can continue to work in private and other areas of aviation after age 65, just not Part 121 carriers (broadly speaking, these are the general passenger commercial flights). So you can typically continue to fly charter services, private planes, small planes and others. Pilots can also continue to work in the field as instructors, volunteers for organizations and in many other capacities.

This is in an important issue to remember for pilots planning their retirement. You have a valuable and relatively rare skill set, one that will remain in demand long after you turn 65. If you aren’t done working, you don’t have to be.

Prepare for RMDs and Income Taxes

Pilots are high-earning compared to most professions. It has also become common for airlines to operate non-elective retirement funds with relatively high contributions, potentially around 16% of your income. For retirement purposes this is great. It can lead to a very generously funded 401(k) plan come retirement.

But it also means that you should prepare for taxes on that money.

First, since this is all pre-tax income, you will want to plan for income taxes on your retirement distributions. Since your portfolio is likely to be generously funded, it will likely generate a relatively high rate of income with correspondingly high taxes.

This also can raise the issue of Required Minimum Distributions (RMDs). Starting at age 73 (or 75 starting in 2033), you must take a minimum amount from any pre-tax retirement portfolio (such as a 401(k)) each year. The exact amount is determined by the value of your portfolio and your age. The reason for this is to ensure that you pay the taxes triggered by this withdrawal.

If you have a well-funded retirement account and don’t necessarily need all of your RMD, they can be an issue. Once you turn 73, make sure you know your obligations, and integrate RMDs into your other retirement planning components.

The right financial advisor can help you review and plan for RMDs, taxes and other upcoming issues in retirement.

Health Benefits

Finally, make sure to review your health insurance. This is an area where your value will range widely depending on your specific employer(s).

Medicare eligibility will begin at your mandatory retirement age of 65. Most people can plan for that to pay for the majority of their health care needs in retirement, but not all of them. Among other issues, a standard household should plan for gap insurance (to cover the costs that Medicare won’t pay) and long-term care insurance (to cover the potential need for long-term care).

How you cover these costs will depend on your specific retirement plan. In some cases, your employer may offer health care benefits that extend into retirement. In other cases, you may need to cover the costs of insurance by yourself. In all cases, make sure to anticipate these costs in your retirement budget.

Consider speaking with a financial advisor if you’re interested in seeking professional guidance to plan your retirement.

The Bottom Line

Airline pilot retirement involves several major issues. Among other issues, prepare for a high-income retirement that you must take early, and the tax issues that come with it.

More Tips

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