Making sure you have enough money to last through your retirement requires careful planning years before you leave the workplace, as well as prudent budgeting during your Golden Years.
There are several different generic formulas to help retirees figure out how much they’ll need to save to live comfortably in retirement. The rule of 25 suggests you save 25 times the amount you expect to spend each year. Annual spending can fluctuate greatly, however, yet it still helps to know how much money the average retiree lives on each year so you can get a rough estimate of your retirement savings goals.
In this article we’ll take a deep dive into the annual spending characteristics of seniors ages 65 and older so you can compare those totals with your household expenditures.
Average Annual Spending, 65 Years and Older
According to the Bureau of Labor Statistics, seniors ages 65 and older spent an average of $47,579 per year in 2020.¹
Furthermore, that yearly sum is broken down into several major expenditures:
- Food: $5,698
- Housing: $17,435
- Utilities: $3,783
- Transportation: $6,221
- Healthcare: $6,668
- Entertainment: $2,293
It’s definitely worth noting that most monetary figures from 2020 – the most recent year available – aren’t exactly a spot on comparison for the economic situation of 2022. In April of 2020, for instance, the national average for a gallon of gasoline fell to $1.77 a gallon.² In April of 2022, the national average for a gallon of gasoline skyrocketed to $4.14, and by June it had jumped further to just under $5 a gallon.³
Surging prices for fuel, food, housing, and other primary expenses is costing Americans both young and old a lot more in 2022. Inflation rose to 8.6 percent in May, the highest number seen since 1981. According to Moody’s Analytics, inflation is costing American households an extra $460 per month.⁴
Retirees typically tend to spend less than other demographics, but many of these costs are baked-in to their monthly budgets – food, fuel, housing, and healthcare remain ongoing concerns throughout retirement.
Here’s a closer look at each category:
- Housing. Mortgage, insurance, repairs, and renovations are the largest ongoing expenditures for most retirees. Housing costs vary greatly by region – it’s much more expensive to live in sunny Southern California than western Kentucky, for instance. If your housing costs are exorbitant, consider relocating once you retire as a means to conserve your retirement savings.
- Healthcare. This is the second-largest expenditure and includes insurance premiums, copays, prescriptions drugs, and medical procedures. Healthcare costs can fluctuate greatly depending on your health and any ongoing medical concerns.
- Food. The total provided above includes both meals eaten at home and at restaurants. Meals eaten at home totaled $4,204. Eating out several times per week will drastically increase expenditures in this category.
- Transportation. This is another category that’s greatly influenced by lifestyle. Seniors with jam-packed travel schedules will feel the effects of $5 gasoline much more than seniors who stick close to home. The 65-and-over average of $6,221 extrapolated over 15 years is a bit south of $100,000 – likely a big chunk of any retiree’s savings. Consider your travel plans carefully in retirement.
The Bottom Line
Fixed, variable and one-time expenses can greatly affect the amount seniors need to live on each year in retirement. Comparing your expected retirement income to your expenditures will help you find ways to trim the fat and stretch your retirement savings.
Sources:
1. Consumer Expenditures in 2020, Table 12: age of reference person: Average annual expenditures and characteristics, 2020, U.S. Bureau of Labor Statistics, https://www.bls.gov/opub/reports/consumer-expenditures/2020/home.htm
2. U.S. average gasoline prices and vehicle travel fell to multiyear lows in 2020, U.S. Energy Information Administration, https://www.eia.gov/todayinenergy/detail.php?id=46356
3. National Average Moves Up As Crude Prices Increase, AAA, https://gasprices.aaa.com/national-average-moves-up-as-crude-prices-increase/
4. Here’s What the Fed Rate Hike Means to Your Salary, CNN Business, https://www.cnn.com/2022/06/17/economy/inflation-wage-gains-economy/index.html
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
