We all come to a point wherein we just want to stop working and enjoy the money we saved through the years. Someday we will retire and just relax, do the things we love to do, discover a new hobby, and live life comfortably.
The question we ask ourselves, though, is if we spend less when we retire. Let’s look at the four questions below and see how this will help us save for that retirement stage.
How much does an Average Retiree Spend per Year?
Most people approaching their retirement age are excited to live life and enjoy their hard-earned money. They are in constant anticipation for the day when they will no longer have to work, day in and day out.
So, how much do they spend a year? Well, an average retiree spends about 3,800 dollars a month. This is about 45,756 dollars a year. The average monthly spending of a retiree is about 1,000 dollars less than what the average monthly spent by US households.
The amount spent by a retiree is not the same for everyone. This is based on variables such as the annual tax of a house or a vacation house by the beach and the price of certain goods such as gas, food, and toiletries.
The amount spent by a retiree also depends on how many they are in the household.
The following are the essential items a retiree would typically spend their money on.
On average, retirees spend about 1,322 dollars a month on the house’s mortgage. This is their biggest spending category. Even if they have completed paying their mortgage, other aspects need to be taken care of regularly. This includes taxes, repairs and/or maintenance, utility bills, and household supplies.
They shell out around 567 dollars a month for transportation. This includes insurance, repairs, gas, and maintenance.
Healthcare ($499 a month)
Health insurance premiums may reach up to 4,000 dollars annually. This is a spending category that gets higher as a person ages. Retirees may not get financial assistance anymore, but at least their Medicare (health insurance) helps cover some costs.
Food is another major budget category for any age group. Retirees, though, spend nearly 20% less than an average household. They spend around 483 dollars a month. This may be partly since retirees spend more at home.
Personal insurance or pension
Retirees who haven’t reached their maximum retirement age in Social Security spend around 237 dollars a month in their contribution. Some also pay company pension contributions.
As a person ages, the greater their appreciation is for one’s financial blessings. Most retirees dedicate approximately 202 dollars a month to cash contributions. This includes charitable contributions and also to the church.
Retirees also want to enjoy and have fun, like younger people. Older households spend roughly 197 dollars a month on entertainment alone. This includes travels, trips to the movie, and other fun activities.
Spending patterns in Retirement
Retirees spend less as they age. There are three stages of retirement – these are the discovery, endeavor, and reflection.
The discovery stage may be from the age of 65 to 74 years old. This is the time wherein retirees go do the things they always wanted to do when they retire.
This is the stage where their expenses increase. This is the stage where they enjoy traveling, shopping, buying anything they want, etc. Also, more time could be spent with family.
The endeavor stage is between 75 to 84 years of age. A lot of people may still enjoy exploring hobbies or traveling. This is the time when retirees consolidate. This stage is wherein they start to focus on the simple things in life.
Endeavor stage is when the excitement of retirement falls into patterns of a daily routine. This is when some retirees think about downsizing the house into something more manageable.
During this stage, retirees tend to spend lesser than when they are in their early stage of retirement. They pay around 10 to 15% less than what they spend during their discovery stage of retirement.
The last stage is the reflection stage. This is for retirees aged 85 years old and above. This is when finances and health may affect or limit a retiree’s choice.
This is when most retirees enjoy spending time at home. This means they spend less as they eat home-cooked meals, don’t travel that much and don’t do their hobbies that much.
In a report by EBRI, it is said that 59 percent of retirees spend less than their income or savings. For single retired individuals, the average spending is around 5,000 dollars lower than their budget. For retired couples, they spend approximately 80% of their savings.
Generally, the spending patterns of retirees decrease as they age. This is due to the change of lifestyle and their outlook on life as they grew older.
How do you retire on a budget?
Budgeting is an integral aspect of every individual. This includes retirees who want to live comfortably with their retirement money. To retire on a budget, one should decide on how they want their retirement life to be.
Here are some helpful tips when planning your retirement:
Always cover obligations and essentials first. This includes comfort, health, and security. Make sure that the budget covers housing, food, utility bills, healthcare, insurance, etc.
Once all the needs or “must-haves” are covered, you can now plan your budget for the discretionary items. This includes travel, shopping, dining out, and entertainment.
Think of the bigger picture
This means always consider changes. Do not only plan or save for today but also for the coming years. Consider changes such as taxes, price hikes, an increase in utility bills, and others.
If you think ahead, it will help you manage whatever changes may happen. This will help you secure finances that will let you live a comfortable retirement life.
Communicate with your partner or family
It is best to share your budgeting plan with your partner (if you have one) or with the family. This is to ensure that you are on the same page. It is no secret that money issues can be a cause of strife between couples or even within the family. This is not an excellent way to start your retirement life.
Stick to your Income plan
You should have a well-designed retirement plan and investing strategy. Once you have it, make sure to stick with it. There are times, though, where there may be changes in the investment returns such as inflation; in this case, you need to be flexible.
Flexibility is needed to manage or adapt to changes, but it must still go in line with your budget plan. It is also best to have an emergency savings fund.
The emergency fund is to ensure that you can still have comfortable and budget-friendly retirement years.
How much is enough for Retirement?
Under the current US law, the full retirement age for people who turned 62 last 2018 is 66 years and 4 months. For those who turned 62 in 2019, their full retirement age is 66 years and 6 months.
To know how much is enough for retirement, one must understand how they want to spend their retirement life. Are they going to travel often? Do they just want to settle at home and do hobbies such as gardening or painting?
Lifestyle affects how much is enough for a person to retire. The important thing, though, is to be realistic. Be prepared for changes such as inflation. Some costs are likely decreasing in the years, but some expenses increase each year.
Costs in healthcare are likely to rise as the years go by. Utility bills and housing payments may increase also.
If you plan to retire early, higher savings are needed. For those who reach their maximum retirement age before retiring, they may have or saved enough for a retirement fund.
Keep in mind that retirement is your reward for those years of hard work; you should still reward yourself accordingly.
Overall, the answer to the question, “Do you spend less in retirement” is yes. Retirees do spend less than those who are not yet retired.
This is because they spend less on transportation, be it gas (if they have their own car) or fare if they commute. They also spend less on clothing (work attire).
Retirees also spend less as they age due to their change in lifestyle and perspective. As they reach their Reflection stage of retirement, they mostly spend money on healthcare (maintenance and regular check-ups).
They spend less also as they stick organized and realistic budget plans on which they stick to. This is one vital thing to keep in mind if you also want to spend less when you retire.