Retirement Costs Top $5,000 a Month — How To Make Your Income Last
Just because you finally get to stop working, that doesn’t mean you won’t need income in addition to a healthy amount of savings to cover you in retirement. When you look at where your investment accounts are now, and your projected nest egg is looking thin compared to how thick your expenses will be, it may be time to formulate a new plan.
Based on the most recent Bureau of Labor Statistics (BLS) data, the average retiree household, comprising people aged 65 and older, spends approximately $60,000 to $61,500 per year. This breaks down to roughly $5,000 to $5,120 per month for essential costs such as housing, transportation, healthcare and food.
Consider This: What Waiting Until 35 To Start Saving for Retirement Really Costs You
For You: Start Growing Your Net Worth With Smarter Tracking
Here are a few key takeaways:
On average, retirees over 65 spend about $5,119 per month
Younger retirees between the ages of 61 and 78 average about $70,207 annually, while those 79 and older tend to spend less, averaging just under $50,000.
At about 36%, housing represents the largest expense, followed by 15% for transportation and about 13% for both healthcare and food.
While spending averages around $61,432, the same data shows average income for this group at $65,468, leaving a tight buffer for savings or emergencies.
40% of adults worry they won’t have enough money to last through retirement, according to data from the Pew Research Center.
Here’s a closer look at how you can work to reduce these costs so your retirement income lasts longer or free that money up for things like traveling and hobbies. In other words, just how much is “enough”?
Housing
Keeping a roof over your head is important, and CNBC reported financial experts recommend saving enough to have access to 70% to 80% of your current income. Housing, on average, makes up about 20% to 36% of a retiree's expenses, according to the BLS data. That's a lot of percentages and a hefty chunk, which means reducing your housing costs will be most impactful to your overall retirement spending.
If you love your home -- or have deep roots in your area -- it might make sense to stay where you are. If not, then you might consider selling so you can downsize, or even move to an area with a lower cost of living. Buying or renting a smaller home in a more affordable market, or even a co-op in a senior living community, can dramatically reduce your cost of living.
Plus, you won't have all the headaches and added expenses that come with a large house, such as emergency home repairs and maintenance.
Transportation
Transportation, including owning a car, can cost over $8,000 per year for retirees. Many retirees hesitate to give up the freedom that driving offers -- but if you aren't working, it might be feasible to share a car with your partner. Depending on the mass transit and walking options where you live, you could even give living car-free a shot.
As with your home, downsizing can significantly reduce your costs like insurance, gas and maintenance.
Healthcare
Your medical needs (and unfortunately, bills) expand quite a bit in retirement. Even with programs like Medicare, retirees spend around $7,505 in healthcare costs per year, which is estimated to be about 13% of their total expenses. It's important to acknowledge that reducing these costs can be a lot more challenging than housing or transportation.
If you are currently in good health, then making healthy lifestyle choices like eating a healthy diet, avoiding alcohol and smoking, and regular exercise may reduce your risk of serious illness or injury -- but if you already have an illness or condition that requires ongoing treatment, your options are a lot more limited.
Food
After healthcare, food is the next largest line item on a retiree's budget. Retirees spend an average of $7,350 on food per year. Food is obviously not something you want to cheap out on -- nutrition is important at any age -- but there are still ways you can save a few dollars.
About one-third of that $7,350 is spent on food outside of the house, so reducing the number of meals dining out can be an easy win here. When you dine out, ask about senior specials, as sometimes these discounts aren't advertised.
Look for easy opportunities to save on groceries, as well. Many stores like Savers and Albertsons have senior discounts on certain days of the week. Do some research to find out what the stores in your area offer. You can also save money on groceries by meal planning and making a list, which will help you avoid impulse purchases. Try not to shop on an empty stomach, when you're likely to be tempted by junk foods that are bad for your health and your wallet.
Retirement can be expensive, but you can find ways to live within your means and still enjoy life. Knowing where your money goes and actively taking steps to reduce costs are the first steps to financial peace of mind.
James Holbach and Dawn Allcot contributed to the reporting for this article.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion:
How Middle-Class Earners Are Quietly Becoming Millionaires — and How You Can, Too
7 Kirkland Signature Items at Costco Worth Buying This Spring
4 Financial Decisions Young Adults Make That Are Hardest To Undo
