“How to Plan and Save for a Comfortable Retirement”

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Average Retirement Spending and You

Predicting your retirement expenses is crucial for effective retirement planning, but it can be challenging. To get a quick estimate, consider the latest data from the Bureau of Labor Statistics (BLS). According to BLS, American households led by individuals aged 65 and older spend an average of $4,345 per month. Here’s what this could mean for your retirement plans.

Average Retirement Spending and You

In 2021, BLS data revealed that households headed by individuals aged 65 or older spent an average of $52,141 annually, or $4,345 monthly. This includes expenses for housing, food, utilities, household operations, clothing, transportation, health care, entertainment, and miscellaneous items. Notably, households led by younger retirees (ages 65-74) spent more ($4,870 monthly) compared to those led by individuals aged 75 and older ($3,813 monthly).

Your Spending Will Differ

While BLS data provides a useful benchmark, your personal spending will likely vary. Factors such as your location’s cost of living, homeownership status, travel plans, and health care costs will influence your expenses. Living arrangements, such as having a spouse, partner, or roommates, can also impact your household income and expenses. Using your current budget to project retirement expenses is a more accurate method for estimating your personal retirement spending.

How Much Should You Have Saved for Retirement?

Ideally, your retirement savings should cover your expenses from retirement until the end of your life. However, several unknowns can complicate this calculation:

• Unexpected expenses: Consider potential costs like dental implants or home repairs due to natural disasters.
• Lifespan: It’s challenging to predict how long you’ll live in retirement.
• Interest and investment earnings: While you may earn interest or investment gains, this income can fluctuate.

Retirement planners often use the “4% Rule” to estimate necessary savings. This rule suggests you can safely withdraw 4% of your retirement savings in the first year and adjust for inflation annually for 30 years without depleting your funds. For example, to cover average annual spending of $52,141, you would need $1,303,525 in retirement savings.

Should You Count on Social Security in Retirement?

As of April 2023, the average monthly Social Security check for retired workers was approximately $1,786. However, your benefit amount may differ. You can estimate your monthly benefit at various retirement ages by visiting the Social Security website and creating an account.

While a $1,786 monthly check doesn’t cover the average spending of $4,345, it does cover over 40% of it. To make up the difference, your retirement savings would need to cover an additional $2,559 monthly, or $30,709 annually. Following the 4% rule, you would need around $767,725 in retirement savings to sustain a $30,709 annual withdrawal for 30 years, adjusting for inflation.

Tips for Cutting Expenses in Retirement

On average, retirees spend the most on housing, transportation, and health care each month. Here are some strategies to reduce these expenses:

1. Cut Your Housing Expenses

Housing is the largest retirement expense, averaging $1,573 per month. Consider options like paying off your mortgage early, downsizing, taking in roommates, or moving in with friends or family to reduce costs.

2. Sell Your Car—or Your Second Car

Maintaining a car involves payments, insurance, fuel, repairs, maintenance, and parking. If you can manage without a car (or a second car), selling it could save you money. Moving to a location where walking and public transportation are viable options can also help.

3. Plan for Health Care Expenses

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple aged 65 in 2022 may need around $315,000 in after-tax savings for health care expenses. If you’re not yet retired, consider using a tax-advantaged health savings account to build reserves. Free counseling from your state’s State Health Insurance Assistance Program (SHIP) can help you choose the most cost-effective Medicare plan.

The Bottom Line

While average retirement spending data can provide a rough estimate, it’s essential to perform detailed calculations based on your current budget. Look for ways to reduce expenses and determine your expected Social Security benefits. If you need assistance, consider consulting a financial planner specializing in retirement planning. They can help you develop a retirement spending plan that aligns with your budget and vision for a comfortable retirement.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you achieve your financial goals!

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