How Your Early Retirement Math Could Change If You Live to 95
The typical American spends about 20 years in retirement, but yours could last nearly twice as long if you retire early and live until age 95.
Spending decades out of the workforce is what many people dream about when they decide to retire early. However, the dream won’t come cheap.
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Keep reading to learn what your early retirement dream will likely cost if you live until 95.
What Qualifies as Early Retirement?
The average retirement age in the U.S. is 62, according to data cited by SoFi. That’s a good bit younger than the traditional retirement age of 65.
Technically, you qualify as an early retiree at the age of 61. Of course, retiring a year ahead of everyone else might not fit the definition of a “dream” early retirement. A better age to consider would be 57, which gives you a five-year head start on the typical retiree.
The average life expectancy at 57 is 81 years old, according to the Social Security Administration, which means a retirement of about 24 years. At age 62, the life expectancy is 82 years old.
If you take an early retirement at age 57 and live until you’re 95, your retirement will last 38 years — which is probably longer than you spent in the workforce.
How Much Retirement Will Cost You
The amount of money you can expect to spend in retirement varies according to different factors, from your location and lifestyle to your health, family situation and housing status.
However, there are some general numbers that serve as a useful guideline. For Americans 65 and over, average annual expenditures were $61,432 a year as of 2024, according to the Federal Reserve Bank of St. Louis (FRED).
Based on that average, you can expect to spend about $2.33 million if you retire at age 57 and live until 95. The math looks like this:
$61,432 (in annual expenditures) x 38 (years of retirement) = $2,334,416
Here’s a look at typical expenses by spending category, according to a recent report from Western & Southern:
Expense Category | National Average Annual Cost | Percentage of Total Budget |
Housing | $22,193 | 36% |
Healthcare | $7,799 | 13% |
Food | $7,940 | 13% |
Transportation | $9,538 | 15% |
Other Expenses | $13,962 | 23% |
Total | $61,432 | 100% |
The X Factors
One thing the above expenses don’t include are taxes. As Western & Southern noted, you could face taxable income from pensions, 401(k)s, IRAs and Social Security. Depending on how much wealth you’ve amassed, and how you manage it, income taxes could suck up thousands of dollars a year.
Another big wild card is healthcare, which Fidelity describes as “unpredictable and expensive” in retirement. Healthcare expenses can skyrocket in a hurry if you run into a medical condition that requires constant attention or even full-time care.
Even if you remain relatively healthy, you can still expect healthcare expenses to keep moving higher after you hit age 80.
According to Fidelity, a 65-year-old retired couple needs an average of $330,000 in after-tax assets to pay for expected healthcare expenses through the average life expectancy. That figure will rise by tens of thousands of dollars if you live to age 95.
For planning purposes, you might want to “factor in an even higher number,” Fidelity noted, because many seniors experience above-average costs due to chronic illnesses, longevity or long-term care.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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