Planning for retirement isn’t always a fun subject. In fact for many people, the entire topic can be terrifying. It doesn’t have to be that way. Instead, planning early can make you look forward to a strategy talk. That’s especially true with a quality financial advisor who listens to your goals and discusses the best path to them. There are a few things everyone should know about how their retirement funds will be spent.
First, a Word on Retirement Savings
The Federal Reserve recently published a report that found the typical American aged 65 to 69 has about $200,000 in total cash savings. That’s not a lot of cushion when you consider the average pre-tax income for a 65-year-old is just over $55,000 a year. It’s even a little tighter when you realize that, per the Bureau of Labor Statistics, or BLS, the average 65-year-old spends about $4,300 a month to live. This means that there’s only around $300 per month for savings, emergencies, and vacations. You can see how that $200,000 gets tapped into quickly.
A Look at the Biggest Expenses in Retirement
Before we even start talking about how inflation depletes your savings we should look at the four expenses that consume most of your budget. These four categories account for over 75% of most retirees’ cash spending.
1. Retirement Housing
Housing is the number one expense for every retiree, making up over 36% of the cost of living. That’s even considering downsizing which is usually the “go-to” strategy for pensioners. Remember that the real estate rule of thumb is that it takes at least 7% of the value of a property to maintain it annually. So housing is more than just the cost of the mortgage, and the taxes, because a home is very often the biggest asset people have, and maintaining that investment is imperative.
2 & 3. Transportation and Health Care Costs
Transportation and Health Care costs are virtually tied at 2nd and 3rd highest expenses. Healthcare expenses in retirement in 2022 averaged $315,000 per 65 year old couple. That’s 5% higher than the prior year.
The cost of transportation for Americans 65 and older is roughly $7,160, or $600 per month according to a recent Forbes article. Reducing the number of vehicles is one strategy for lowering transportation costs, which is fine if it’s practical. Exercising for preventative health care sounds great and should be a part of a good plan, but exercise can’t substitute for things like accidents and pandemics, basically the unforeseeable. And that doesn’t even take into account any catastrophic illness that could devastate your retirement.
4. Food
The number four expense that you just can’t get around is the cost of food. Annually the average food budget is about 12% of the average income, and that’s for the basics, we’re not talking imported foods, specialty items, or organics, just the essentials. Oh, and this category also doesn’t include dining out, which falls into the entertainment category.
An Informed Retirement Plan
Now that you have the facts, it’s a great time for you to talk with a financial professional. Whatever stage of planning you’re in, a conversation with an advisor with the experience of Dan Foss is worth your time. In nearly three decades Dan has helped thousands of people of all ages prepare for a better future. At Foss Financial, we work with you to refine your strategy, visualize your goals and secure your future. We want you to keep your quality of life and enjoy your comfortable future. Together we can plan on it.