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As people approach their 60s, they often think about the transition to retirement, which often involves adjusting their budget. Everyone’s spending habits during their golden years vary, but it’s important to understand how much a typical retiree spends each month. Doing so will help you plan wisely for aging and retirement, ultimately leading to a more comfortable life in your later years.
average retirement expenditure
According to the Bureau of Labor Statistics (BLS), in 2021, the average income for people 65 and older was $55,335 and average expenses were $52,141, or $4,345 per month. It also found that younger retirees have higher expenses than older retirees: $4,870 for those ages 65 to 74 and $3,813 for those 75 and older.
How much should you plan to spend in retirement?
Knowing the average monthly expenses of a retiree is helpful, but it’s not necessarily an indication of what life will be like in retirement. Instead, you need to look at your current expenses to determine how much money you’ll need in retirement.
Most retirement experts recommend using the 80% rule to determine how much money you need. That means he should expect to devote 80% of his pre-retirement income to post-retirement expenses. This ratio takes into account that while some pre-retirement expenses may decrease, other expenses, such as travel or additional medical expenses, may increase.
For example, assume your current household income is $80,000. Considering the 80% rule, you should plan on needing at least $64,000 per year.
Typical expenses after retirement
To better understand the income you need in retirement, you need to understand what retirees spend most of their monthly income on. Here are some of the biggest expenses.
housing
Unless you own a home and have paid off your mortgage, housing costs will likely be your biggest retirement expense. The BLS report found that people 65 and older spend an average of $18,872 a year on housing. This equates to 36.2% of annual expenditure.
If housing costs are higher than you can afford, consider downsizing to a smaller home. You may also consider moving to a location where housing prices are lower. When you retire, you have more flexibility about where you live, especially if you have family and friends in other parts of the country.
Transportation facilities
The next biggest expense for retirees is transportation. This equates to $7,160 per year, or 13.7% of his overall expenses. Once you quit your job, you can also start using public transportation. Eliminating your car payment can potentially save you a significant amount of money each year. If you are married and both have cars, you may consider selling your car and becoming a one-car household. Travel costs can be expensive, but there are ways to ease the strain on your budget.
health care
Americans spend an average of $7,030 a year on health care costs during retirement, representing 13.5% of overall expenses. Medical expenses are one of the expenses that usually increase after retirement compared to before. This is because of underlying illnesses, medical procedures, and long-term care costs. Continuing preventive care can go a long way in minimizing potential expenses.
food
Food costs average $6,490, or 12.4% of annual spending. Fortunately, there are many ways to reduce your food costs. Weekly meal planning allows you to create a shopping list of everything you need and avoid impulse purchases. Meal planning can also help you avoid those nights when you end up eating out because you don’t know what to make. Using coupons is also a great way to save money on food. Most major grocery stores have apps with coupons, and you can also use shopping apps like Ibotta to save even more.
public works
When you retire, your utility bills will be a little higher. Now that we’re home more often, we need to keep our homes at a more comfortable temperature. On average, an American over the age of 65 spends $3,921, or 7.5% of his expenses. Simple things like making sure your windows and doors have proper seals to prevent air loss and installing a smart thermostat can help you save on heating and cooling costs.
conclusion
It helps you understand how much the average person is spending on different things as you move towards retirement. However, it’s important to understand that someone’s spending can be very different from yours. Crunch the numbers and determine exactly how much you need based on your current spending.
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