Why You’ll Likely Need Less in Retirement

Older couple gathers vegetables in garden

Ultimately, retirement planning is like a math equation — you input several variables and estimate whether what you'll have will pay for what you will need in retirement. The challenge is that many of the variables are future values that are unknowable today.

But that doesn't mean you can't make some educated guesses. So let's examine the “what you'll need” part of the equation — that is, how much the retired life will cost you each year — to see if we make the murky crystal ball any clearer.

How much do retirees need?

The standard rule of thumb is that retirees need 70 to 80 percent of their pre-retirement income. Fortunately, we can examine how spending changes as we age by looking at the Consumer Expenditure Survey that is produced every year by the U.S. Bureau of Labor Statistics. That can help us figure out if this 70-to-80-percent estimate has any basis in reality.

The following table highlights average income and expenditures of households led by people in different age groups. (I selected particular categories from the much larger Consumer Expenditure Survey.)

EXPENSE ITEMS

AGE 25-34

AGE 35-44

AGE 45-54

AGE 55-64

AGE 65-74

AGE 75+

Income before taxes

$59,613

$76,128

$79,589

$68,906

$49,711

$31,782

Avg. number of persons per household

2.9

3.3

2.8

2.2

1.9

1.6

Average annual expenditures

$46,617

$55,946

$57,788

$50,900

$41,434

$31,529

Food at home

$3,338

$4,255

$4,369

$3,681

$3,213

$2,643

Food away from home

$2,753

$3,227

$2,861

$2,387

$1,935

$1,230

Housing

$16,845

$20,041

$18,900

$16,673

$14,420

$11,421

Apparel and services

$2,087

$2,040

$1,966

$1,571

$1,186

$708

Transportation

$8,231

$8,763

$9,255

$8,111

$6,086

$4,288

Health care

$1,800

$2,583

$3,261

$3,859

$4,922

$4,754

Entertainment

$2,251

$3,058

$3,088

$2,683

$2,341

$1,374

Reading

$61

$80

$104

$126

$147

$135

Education

$839

$963

$2,094

$917

$240

$140

Pensions and Social Security

$5,151

$6,664

$7,227

$5,932

$2,261

$763

Personal taxes

$1,055

$1,992

$3,323

$2,295

$1,116

$144

Factors that reduce living expenses among retirees

As you study the table, you notice that expenditures peak somewhere between age 45 and 54 — then they gradually decline. Here are some of the reasons that drive the trend:

  • Fewer people under the roof. Eventually, kids leave the house and you wind up spending less money on food, utilities, education, and Febreze. Also — and this is the sad part — a spouse will pass away. When a two-person household goes down to a one-person household, expenses drop by approximately 30 percent.
  • We eat less as we age. As our metabolisms slow down, so does our need for calories. Another unfortunate reason some older people eat less is that they find it more difficult to go shopping and to cook meals.
  • The mortgage eventually gets paid off. Roughly 55 percent of households in the 45-to-54 age group have a mortgage, whereas just 13% of the 75-and-older group still have that monthly payment.
  • We just slow down. As we age, we spend less on entertainment, clothes, travel, and other semi-discretionary expenses. As a writer and former English teacher who is married to a writer, I was heartened to see that expenditures on reading generally increase as we age, with just a slight dip after age 75.
  • We don't save for retirement forever. Once you retire, you'll stop paying the 7.65 percent FICA tax that pays for Social Security and Medicare (15.3 percent if you're self-employed) and you'll stop contributing to your 401(k)s, IRAs, and other savings vehicles. This alone could shave 15 percent to 25 percent off your pre-retirement expenses.
  • Uncle Sam likes older people. Senior citizens pay much less in taxes, for several reasons: They receive a higher standard deduction, most Social Security is not taxed, and other sources of income — such as qualified dividends, municipal bond interest, and long-term capital gains — are taxed at lower rates than ordinary income. Plus, as you can see from the first row in the table above, income declines as we age, which puts most older people in the bottom two tax brackets.

Not every expense decreases as we age — notably, health care costs increase. Also, there's a legitimate question about whether senior spending declines out of choice or necessity — i.e., retirees would spend more if they had more. However, for many of the categories, the spending declines are the logical result of getting older and not working anymore. Thus, on the whole, the evidence indicates that the old rule of thumb that you'll need 70 percent to 80 percent of your pre-retirement income in retirement has its foundation in reality.

How to translate statistics to your retirement plans

However, while the average retiree spends less than the average 50-year-old, this is not the case for every retiree. Many spend quite a bit more, especially in the first few years of retirement, as they fill their newfound free time with travel, hobbies, classes, and other forms of recreation. Others see their income needs drop to half of their pre-retirement income. So when it comes to your own financial planning, especially once you're within a decade of retirement, it's important to look at and refine your budget, estimating how much you'll actually need after you kiss the working world good-bye.

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Nicole
Nicole
8 years ago

One thing I would note: It isn’t just that health care costs increase, but for future seniors, health care costs will be increasing at a rate greater than inflation and it is likely that government will be footing less of the bill. I would be very wary of advising people who have more than a decade or two to go to assume they will have lower expenses in retirement precisely because of health care costs. (And it’s one of those risky things– if you don’t have health care problems you can keep working and you’re fine… but if you have… Read more »

Well Heeled Blog
Well Heeled Blog
8 years ago
Reply to  Nicole

Healthcare is a consumption to a certain extent, and as you get older it will affect EVERY aspect of your life, no matter how healthy you are now or even as a relatively healthy elderly person. No one will throw you out of the emergency room if you come in with a gash in your head. Depending on the type of insurance you have, however, you may have to rely on 2nd generation drugs with more side effects instead of a superior 4th generation drug. Or, maybe you are sick but not quite sick enough to want to go to… Read more »

sarah
sarah
8 years ago

Shouldn’t you be dividing the household expense figure by the number of people in the home with an income? If one spouse dies, that could reduce the income, right?

That said, I spend most of my money on student loans, a mortgage payment, paying taxes and saving for retirement so I imagine if I didn’t have to do those things I could get by on much less than 75% of what I make now.

Savvy Scot
Savvy Scot
8 years ago
Reply to  sarah

You would surely spend a lot more money with all that free time?

sarah
sarah
8 years ago
Reply to  Savvy Scot

Why? I like to garden, cook, read, sew, play guitar, knit… not expensive hobbies.

And besides, I never said I don’t spend a good chunk of money on travel, entertainment, etc. It just pales in comparison to the other things.

My parents’ house is paid off and despite having a very average income and some expensive hobbies they have more money than they know what to do with.

Bill Chase
Bill Chase
8 years ago
Reply to  sarah

The “average” couple or person that has plenty of money is in the eyes of the beholder. Today’s society does not know the meaning of average any more than it knows what middle class is. I have read of people saying or implying incomes approaching $100,000 are average. Others are just fine and happy with $40,000 income. I jumped to conclusion that maybe your example is the “high bucks,” but if I am wrong it is your fault for not painting a clearer picture. For your (or anybody’s) comment about income adequacy to have usefulness, a specific dollar value or… Read more »

lulu
lulu
8 years ago
Reply to  Savvy Scot

I agree Savvy Scot. I know everyone has different goals, but mine is not how to get away with saving as little for retirement as possible, but how I can save as much (without current lifestyle suicide). I plan on spending more without having my time occupied 60 hours a week.

To expect I’ll spend less in retirement is a pipe-dream for me personally. Especially since I’ll be planning on traveling, and long-term at that.

Barb
Barb
8 years ago
Reply to  lulu

I own a home, travel regularly, quilt (not a cheap hobby)…the list goes on. I still spend less in retirement. Why? I dont save for retirement. I dont support children. I dont save for my children’s education. I soon wont be paying a mortgage. While I travel, I dont have the persona maintenance needs I did prior retirement. Not saying I fell apart, just that I no longer dress for sucess every day, eat out with clients or do many of the previous work related expenses. Being retired also allows me to save money by doing things not a prime… Read more »

Courtney
Courtney
8 years ago
Reply to  lulu

I don’t support children either – that’s why our retirement needs are going to be a lot closer to our current spending.

Dogs or Dollars
Dogs or Dollars
8 years ago

In just the past week, I’ve heard tales of two different people re-entering the work force after retirement. I don’t know the details of their cases, but both appear to have either underestimated their retirement income needs or took a bath on their investments or perhaps both.

Or maybe they just want to keep working after all.

In any case, while your logic certainly makes sense, I would be wary of underestimating.

TB at BlueCollarWorkman
TB at BlueCollarWorkman
8 years ago

I never thought about not having to pay fica and social security anymore. I never thought about the mortgage being paid off at that point. Side bar: My grandma gets along okay, but one of your final points is true. Without a doubt, my grandma would spend more if she had more. She loves to travel and eat out, but her fixed income doesnt’ allow it.

Nicole
Nicole
8 years ago

It is possible that future retirees may have to pay additional taxes on their SS income that current retirees don’t have to pay.

jim
jim
8 years ago
Reply to  Nicole

I really doubt it. I don’t know of anyone in government on either party saying we should raise taxes on elderly poor people.

There are already income taxes on SS if you exceed certain income thresholds. To lower that to everyone would basically be taxing the poor old people. No party is arguing to do that… nor do I expect either party will put a ‘tax the poor old people’ issue on their platform any decade soon.

Megan E.
Megan E.
8 years ago
Reply to  jim

Right – they won’t tax poor people. But who will they be? Not the ones reading this article! Those who save more for retirement and are careful planners should absolutely plan on having a higher tax rate on that money as well.

After all, if you expect the worst, you won’t be disappointed when you get less.

Nicole
Nicole
8 years ago
Reply to  jim

The future is pretty grim. The longer they delay making little changes for the reasons you’re talking about, the more they’re going to have to make pretty drastic changes on future generations. People retiring now are fine. But at some point it is going to come crashing down and they’re going to have to do *something*.

Here’s a chart: http://nicoleandmaggie.wordpress.com/2011/08/12/a-much-requested-picture-about-the-future-of-the-economy/

stephen
stephen
8 years ago

Megan E:

I am reading this right now. I know the full 85% of mine and my wife’s SS will be taxed. Even if one of us dies our income will still exceed the limit to escape taxation of our SS. We are not rich but the tax cut off point is not as high as many may think.

Savvy Scot
Savvy Scot
8 years ago

I will need more in retirement! I intend to travel, take up new hobbies and treat my family.

Brian
Brian
8 years ago

What can’t be known from these surveys is whether people of retirement age are spending less because they don’t want to spend any more or because they can’t spend any more. For far too many people, once the income stops, spending declines as a matter of necessity. Planning on spending less as we get older may be a self fulfilling prophecy, one we may not end up being happy with.

Mom of five
Mom of five
8 years ago
Reply to  Brian

But still you can plan on your children being gone, tuitions being a thing of the past, and your mortgage being paid off. Those are tangible savings you can plan on. Some other things like commuting costs will get replaced with whatever is filling your days, but some very large costs, once gone, are gone forever.

Amanda
Amanda
8 years ago
Reply to  Mom of five

Have you seen the number of boomerang families? I wouldn’t count on the kids being gone.

Dee
Dee
8 years ago
Reply to  Amanda

Although boomerang kids do come back, it shouldn’t be a free ride for them. They should contribute to household expenses.

KJ
KJ
8 years ago
Reply to  Mom of five

But, my mortage will be paid off, and kids out of the house a full decade or two before I retire. So, while my expenses at 55 might be less than they are now with small children, student loans, and a mortgage, I don’t think there will be a great decrease in expenses when I simple go from working to not working.

Rosa
Rosa
8 years ago
Reply to  Mom of five

You can plan on the kids being gone, but I’m not going to. We have friends of near- or over retirement age working to support grown children with disabilities and brain injuries, as well as raising grandkids because their kids have addiction problems. Many of those grown children are partially self-supporting, working or receiving disability payments (or military disability pay). But their parents are still having to caretake, financially and practically. Also I see middle aged people like me struggling to come up with the money to keep their aged parents in nice memory care wings because their parents retirement… Read more »

Mom of five
Mom of five
8 years ago

What’s a good, solid monetary figure to set as a retirement goal? One million and a paid off home? Half a million? Two million? Anybody want to put forth a figure?

Mike Piper
Mike Piper
8 years ago
Reply to  Mom of five

No way to do that without any information about how much you’ll want to spend per year and at what age you’ll want to retire. The analysis that I do for my wife and I is to estimate how much we’ll want to spend, and subtract any amount we expect to receive from Social Security. Then I go look up a quote for an inflation-adjusted joint lifetime annuity that would provide such an income level. (See this prior GRS post for an explanation of lifetime annuities.) At current interest rates, an inflation-adjusted lifetime annuity (with 100% benefit to surviving spouse)… Read more »

Megan E.
Megan E.
8 years ago
Reply to  Mom of five

It depends on too many factors to know for sure, but I think at my age (late 20s), my husband and I will need between $2-3 million to retire for a comfortable life – not rich, but comfortable.

That would give us enough for around 23 years and would account for inflation estimates and a conservative investment percentage (5-6%).

But will we hit it? Who knows! We’re trying, but we will still be in grad school for a few more years, so it’s unlikely but if I can hit $1.5 million, then it’s worth shooting for more.

stephen
stephen
8 years ago
Reply to  Mom of five

It depends a good bit on where you live. 30k where my mother in law lives is a good living. But where I live, Orlando it is a very poor living. If you know you will have limited income it would be smart to move to a low cost of living area.

Laura
Laura
8 years ago

That food at home number just gets me. I spend about $900 a month on groceries for 2 adults and 2 kids under 5. And my mother in law spends close to that for just herself and her husband but they entertain about once a week and if all three of her boys and their families come it makes for a lot of food needs. I just can’t imagine spending so little. It must not be organic healthy food.

John R
John R
8 years ago
Reply to  Laura

Wow, judge much?

El Nerdo
El Nerdo
8 years ago
Reply to  John R

Don’t complain, just judge back, e.g.: “oh, you smug trustafarian!” 😀

KJ
KJ
8 years ago
Reply to  Laura

Organic does not necessarily equal healthy (organic potato chips anyone?)

healthy doesn’t have to equal expensive
(whole grains and beans bought in bulk and prepared at home, vegetables from the garden)

jim
jim
8 years ago
Reply to  Laura

“It must not be organic ”

No of course not. The average consumer does not buy organic. Organic is only 4% of total food industry. The average consumer can’t afford to buy organic. Sorry but if you think most people buy organic then you need a serious reality check.

Barb
Barb
8 years ago
Reply to  Laura

good grief. I feed myself and an occasional part time at home college student on right around three hundred dollars per month. that includes our pets and we eat VERY WELL. I could do it for less and we would still live very well.

El Nerdo
El Nerdo
8 years ago
Reply to  Laura
kate
kate
8 years ago
Reply to  Laura

check out blogs like moneysavingmom.com (crystal has guest-posted here in the past) and read through her posts and reader comments – her readership consists of a whole bunch of people who feed their families on ridiculously small weekly budgets, many with organic food, grass-fed beef, gluten-free, dairy-free, all sorts of stuff.

Andrew
Andrew
8 years ago
Reply to  kate

That’s what they say they do. Personally, I tend to not believe claims of extreme parsimony when they come coupled with claims of fine dining. Commentators get caught up in a “can you top this” mentality which leads to nothing more than a race to the bottom.

Kevin
Kevin
8 years ago
Reply to  Laura

Organic food is extremely unethical. People are starving all over the world because people like you insist that their food be “organic,” which means an acre of farmland can only produce 1/3 the yield it otherwise could if used to grow a conventional or GM crop. Then there’s not enough food to go around. And guess who the “winner” is come harvest time? Rich, white North Americans. What are the poor, third world people supposed to eat? Who cares, right? As long as you don’t have to wash your fruit. It sickens me to know that people like you don’t… Read more »

bareheadedwoman
bareheadedwoman
8 years ago
Reply to  Kevin

not wanting to wash food is why ‘anyone’ buys organic? GMOs are safe? What are you, a Monsanto hack?

You ARE kidding right?

http://www.theatlantic.com/health/archive/2012/01/the-very-real-danger-of-genetically-modified-foods/251051/

A Comparison of the Effects of Three GM Corn Varieties on Mammalian Health (Int’l J of Bio Sciences read #5 Conclusions)
http://www.biolsci.org/v05p0706.htm

Scientific studies conclude GMO feed causes organ disruption in animals
http://www.naturalnews.com/033784_GMO_animal_feed.html

EU Ban on GMO Rules
http://ec.europa.eu/food/food/biotechnology/gmo_ban_cultivation_en.htm

Kevin
Kevin
8 years ago

There has never in the history of mankind been a single death attributed to consuming GM food.

Meanwhile, 25,000 people will die today from starvation.

But hey, whatever lets you sleep at night.

bareheadedwoman
bareheadedwoman
8 years ago
Reply to  Kevin

what, are you a Monsanto hack? The European Union has banned GMOs, Indian & African Farmers are protesting all over, the science is there to show that we don’t know all we need to about the affects and new studies are coming out daily showing individual adverse conditions of both the crops on mammals, and the pesticides required on GMO soy causing birth defects.

No, we don’t buy “organic” because we are too lazy to wash our food.

http://www.theatlantic.com/health/archive/2012/01/the-very-real-danger-of-genetically-modified-foods/251051/

Ely
Ely
8 years ago
Reply to  Kevin

They starve now, or they starve later when the soil gives out. Conventional farming is unsustainable.

I always find it amusing how religious people get about food! Nothing got more responses than the food cost issue. 😀

jim
jim
8 years ago
Reply to  Kevin

Kevin, Your argument is insulting and ridiculous. Eating organics doesn’t kill anyone. Are you a meat eater? Your argument applies more to meat production than organics. Meat production consumes much higher amount of crop resources. If we were all vegans we’d have capacity to produce much more crops and feed the world easier. But I assume you’re a vegan who limits their calorie intake just to make sure there is enough food to go around. You must also donate all your money to charity to fight starvation otherwise you’d be a hypocrite. Ever drink a beer? Smoke a cigarette? Use… Read more »

Kevin
Kevin
8 years ago
Reply to  jim

That’s a red herring, Jim. Meat is a necessary component of a healthy diet. Humans evolved to eat meat. Sure, we can subsist for a while on a carefully-constructed diet of protein substitutes, but ultimately, the best thing for our bodies is the real thing.

Nobody needs organic food to live. It’s a first-world rich white person luxury that comes at the expense of an adequate food supply for those who cannot afford to keep up.

jim
jim
8 years ago
Reply to  jim

No we do not ‘need’ meat. There are literally hundreds of millions of vegetarians world wide.

We do not ‘need’ organic food either. But eating it does not kill anyone.

We don’t ‘need’ strawberries but I’m sure that strawberries are less efficient produce than wheat or rice. So does eating stawberries kill starving people? Of course not.

EAP
EAP
8 years ago
Reply to  Kevin

You’re kidding right. So much of our crops go to non-food products or to livestock feed. It’s not organic farming, its the subsidized, industrial,production of things like corn and soy on some of our most fertile soils that are unethical so that people can buy ethanol, plant based plastics, and eat lots of meat.

Jan
Jan
8 years ago
Reply to  Laura

We eat in most nights. We both enjoy cooking. Our groceries are about $700 a month. We now buy great spices and enjoy good vegetables. We used to spend 300-500 eating out and 400 in groceries. It all balances out for us. As for those tax breaks for the elderly? Some states differ- but those property tax breaks often begin for seniors who make less than $30,000. We pull in $10,000 more than that. Lucky us, we get to give our local people about 1/9 of our retirement. Since we did not raise our children here and pay a separate… Read more »

Sarah
Sarah
8 years ago

I’d love to see more about how the retired pay less in taxes. I’ve read other articles that state that because retirees can’t claim some of the bigger deductions (like a mortgage and children) their tax liability is much higher than younger folks. I suppose a lot of this depends on where youre money is, but I’d love a complete breakdown of the average tax liability as we age.

Joe+G
Joe+G
8 years ago
Reply to  Sarah

But isn’t the deduction less than the actual cost? It’s great having a deduction for mortgage interest payments, but not if you have to pay more than the deduction is worth. It’s really about the net, not the categories.

Sarah
Sarah
8 years ago
Reply to  Joe+G

Oh definitely, and it makes sense that overall, retirees have fewer expenses. I’ve just read conflicting articles that state that retirees actually have a high tax liability. Maybe they just pay a higher percentage of their income in taxes, but overall, the number is lower. I don’t know, but I’d be interested in a more in-depth analysis of this.

jim
jim
8 years ago
Reply to  Sarah

Retirees pay lower taxes. Who’s saying otherwise? If someone says retirees have higher taxes then someones confused.

Are you maybe thinking of people who are predicting that in the future we’ll be paying higher taxes by the time we retire? Thats a different matter and based on an assumption that taxes will go up in general in the future.

jim
jim
8 years ago
Reply to  Sarah

A few ways retirees pay lower taxes : 1) they don’t have to pay into social security / medicare any more. 2) people over 65 have higher standard deductions 3) social security is not taxed for most low/middle income earners 4) there are often property tax exemptions for retirees 5) their incomes are generally lower and they usually fall into lower tax brackets Married couple in their 50’s making $40,000 combined would have an IRS bill of about $2200 with standard deduction and FICA witholding of $3060. Retired couple in their 70’s with $20k of SS and $20k IRA withdrawal… Read more »

Barb
Barb
8 years ago
Reply to  Sarah

Sarah, I get a government pension and my husband social security. I have taxes taken out of neither. I pay my health care premiums my self and so I can deduct them. My tax burdent his year is exactly zero. nothing in, nothing out.

Next year I will have had a small business, so I may owe a small amount.

Kevin
Kevin
8 years ago
Reply to  Sarah

I can’t speak about the situation in the US, but in Canada, seniors pay absurdly low taxes. They get the same basic exemption as everyone else (the first $10,500 or so, per person, isn’t taxed). Then they get an “age credit” – that’s at least another $6,500 per person in untaxed income. So far, we’re up to $34,000 in untaxed income. Also, seniors in Canada are allowed to “split” their income. So if one person made $100,000 and the other made $0, they can report it as each having made $50,000, which decreases the overall taxes. Then there’s the “pension… Read more »

Andrew
Andrew
8 years ago
Reply to  Kevin

Most boomers are not yet retired, and most are well under 65. If you want to talk about greedy geezers, start with the so-called “Greatest Generation,” who came home from World War II and proceeded to spend the next 60 years creating an unsustainable suburban dream, ruining the environment, launching idiotic wars, and creating the very entitlement programs, such as Medicare, that you now deplore.

Bob
Bob
8 years ago
Reply to  Andrew

That Andrew is where all your Zuckerberg types in your generation will use your very capable brain matter to figure the whole thing out!
Uh, and before I’d “blame” ANYONE in the Greatest Generation, are you speaking English now or is it German?

Poor Student
Poor Student
8 years ago

I think that like you said it varies a lot and there should not be a rule of thumb. Most people here are saving a lot of their income for retirement, so it could be said that they need their income minus what they are saving. But then again they are living very frugally as well so that they can save more. It would be nice to have the option of golf three times a week or a week or two down south each year. If you want a little freedom then it is easy to see why one might… Read more »

BIGSeth
BIGSeth
8 years ago

One factor I never hear people talk about it regards to retirement is price anchoring and inflation.

30 years from now a hamburger will likely cost $64 dollars and I’ll be damned if I’m going out and paying that!

So you just stay home and don’t buy anything.

Marcy Blankenship
Marcy Blankenship
8 years ago

My husband and I are 60 years old and our food budget has dramatically increased NOT decreased. This is because as we get older we are more aware of eating higher quality foods so we only buy free range grass fed meats (when possible), organic free range eggs and organic produce. Our food budget runs about $1,000 a month for just two people. We are working to get this down to $800.00 per month.

Andrew
Andrew
8 years ago

As a 56-year-old I agree completely. The food budget (both at home and away) for my age group totals $6068 for 2.2 people. Ignoring the fractional person, that works out to $3034 per person per year, or just under $253 per month.

That is not realistic under most circumstances, and certainly not if you’re eating food that is responsibly produced.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

God bless people like you who understand that food affects long term health. Perhaps I’m stereotyping too much, but I always assumed it was the younger crowd that was beginning to put the pieces together, so good for you. My parents are about your age and they would never think about eating heathy in such a way if not for an annoying son to constantly berate them about it. (It’s funny: now I’m the one saying “eat your broccoli before your dessert, Dad!!!)
God help my future children…

K.C.
K.C.
8 years ago

My wife and I retired three years ago. The big unknown for the future is the cost of health insurance and medical expenses. So we are reluctant to spend a lot now and continue to add to our savings. We are still in our 50’s and have a high deductible health insurance plan through my wife’s retirement. I do most of the maintenance on and around our house. Over the years I’ve made the yard as low maintenance as possible, but there will come a time when I won’t be physically able to do a lot of the maintenance of… Read more »

Lori Blatzheim
Lori Blatzheim
8 years ago

Thank you, Robert Brokamp. I am pleased that you are representing Seniors as the adviser for The Motley Fool’s Rule Your Retirement service.

Seniors need advocates who show a definite interest in and willingness to present issues faced by Seniors.

I think the month you retire can be a shock as you try to balance the new budget with the new income.

Suddenly there are a lot of decisions to be made on what will no longer be possible due to less income.

I plan to encourage readers of Retire and Renew to read the post.

Thank you.

spiralingsnails
spiralingsnails
8 years ago

“But you’re not a thumb”

Lol, that’s awesome!!!

Andrew
Andrew
8 years ago

According to that chart, health care expenses for people 75+ are lower than for people aged 65-74.

Sorry, not believable.

sarah
sarah
8 years ago
Reply to  Andrew

Many people in that 65-74 group haven’t claimed SS yet and therefore don’t qualify for Medicare.

Andrew
Andrew
8 years ago
Reply to  sarah

Not true–you can get Medicare at age 65 even if you defer Social Security. The application processes are now independent of each other. Many people still get both at the same time but it’s not automatic any more.

jim
jim
8 years ago
Reply to  Andrew

The numbers are ‘per household’ not ‘per person’. The households with head of household >75 years have only 1.6 people on average. The households for 65-74 have 1.9 people.

Per person spending is then :
>75 year = $4754 / 1.6 people = $2971
65 to 74 year = $4922 / 1.9 people = $2590

So per person spending has increased but the # of people is decreased.

Andrew
Andrew
8 years ago
Reply to  jim

Thanks. That makes more sense. However, the figures for both age groups still seem absurdly low.

jim
jim
8 years ago
Reply to  Andrew

They are just out of pocket medical costs. Almost everyone > 65 has Medicare and so the majority of their medical costs are covered. Its also an average including many people with little to no out of pocket costs mixed in with folks with higher costs.

Nicole
Nicole
8 years ago
Reply to  Andrew

Medicare fails to cover a substantial amount of medical costs (for example, a heart attack will cost about $1K out of pocket if you only have Medicare, according to the new Jon Gruber comic book). Most people have supplemental Medigap insurance (which would bring the cost of a heart attack down considerably), but that insurance doesn’t come free– so either you’re paying in Medigap premiums or you’re paying directly.

Jacq
Jacq
8 years ago
Reply to  Andrew

Since it’s on a household basis, I would guess that there may be only one person in many of the 75+ households.

Courtney
Courtney
8 years ago

We’ve run our own estimates for replacing 100% of our current inflation-adjusted income sans social security (not that we think we won’t get ANYTHING, but when you still have 35 years to go, it would be irresponsible to have a fixed number in mind). Yes, we won’t have some expenses in retirement. But we WILL have others (travel, dining, etc) and we WILL have higher health care costs (again, 35 years of medical inflation…) If we end up leaving a ton of money when we die so be it, but better to have too much than not enough and we’re… Read more »

Paula
Paula
8 years ago

My husband and I are semi-retired, but own two businesses and have income properties. A great motivator to keep on living is to keep busy and current by staying involved with working world. The comments on health care are real. I am not yet old enough to receive Medicare benefits and my health care costs are significant, $1500+/mo. My health insurance alone is $854/mo. with a $2500 deductible ( the premium increases about $100/yr.). The high cost of my health insurance is due to my being uninsurable and I’m insured by a plan guaranteed through our state. Naturally, these costs… Read more »

Nicole
Nicole
8 years ago
Reply to  Paula

Unfortunately, unless something amazing happens with health-care technology (or those accountable care organizations really do what they’re promised to do etc.), the trend is that these kinds of expenses are going to get worse.

Paula
Paula
8 years ago
Reply to  Nicole

So true Nicole;
Isn’t it sad that there is the ever-prevelent struggle of money vs. health. I feel so sorry for those retired folks who are having to choose between buying food or medications, or having to choose which medication to afford. Unfortunately, some do not have a choice of being able to afford what they need at all.
I am grateful that I can afford my high cost health care needs, at present and hopefully in the future.

stellamarina
stellamarina
8 years ago
Reply to  Nicole

That is why the health system should be totally overhalled. Better all to pay bigger taxes and all have free health insurance than some pay huge insurance costs to get covered and the rest have no insurance. I heard the other day that one person in four in Texas does not have health insurance. That is a total break down of the health system and is appalling in a so called developed nation

retirebyforty
retirebyforty
8 years ago

We are saving over 50% of our income and are not spending all that much now. I’m pretty sure we can hold spending level after we retire. The more you save now, the less you’ll spend later.
Yes, you’ll have a lot of time to kill, but you can use the time/hobby to make a bit of income instead.
I think the 80% rule is a crock.

John R
John R
8 years ago
Reply to  retirebyforty

Why would you go out of your way to save 50% of your current income if you don’t plan on spending any money in retirement? Are you planning on setting up your kids with a big inheritance or something?

Courtney
Courtney
8 years ago
Reply to  John R

Their username is “retirebyforty” so they’ll need to make the money last at least 20 years longer than the typical retiree.

MainlineMom aka Sarah
MainlineMom aka Sarah
8 years ago

This is a very interesting puzzle to me and my answer is that I have no idea how much I’ll need thirty years from now so I’d better overcompensate on saving. My grandparents are an interesting case study. They saved a lot of money over the course of their lives and still get a fat pension, but they have two homes to maintain and at 92 years old they don’t cook a single thing. They have two cars, even though only one of them drives, and they eat out at nice restaurants every single dinner and many lunches too. I… Read more »

Jan
Jan
8 years ago

My mom does not have a pension- but my father saved well and she gets his SS. She also has two homes (ridiculous) and a car. She lives at a high end retirement center. Between that and health (nursing care+ supplimental) her expenses are around $70,000. A year. Then again…that is about 80% of what they spent pre retirement- when she played tennis at the club and dad worked at owning his small business.

Stacie
Stacie
8 years ago

I think that not only healthcare but nursing/independent living homes are the things I worry about when it comes to saving for retirement. My boyfriend’s grandmother stays in a place that is $5000 a month (!) and that doesn’t include the personal nurse they also hired. With people living longer in general, you could be paying for some sort of care/home for years or decades. It’s a scary thought.

Andrew
Andrew
8 years ago
Reply to  Stacie

$5000 a month must be for assisted living; full-service nursing homes run over $10,000 a month in many places. Very few people, even dedicated savers, will be able to save enough to pay for multiple years in such facilities, and Medicaid, which takes up the slack, will not be able to maintain its current rate of growth for too much longer. I don’t know the solution, and I’m afraid no one else does either.

Barbara
Barbara
8 years ago
Reply to  Andrew

Long Term Care Insurance is a start. The $3,800/year my husband and I pay for that brings much peace of mind with it.

bareheadedwoman
bareheadedwoman
8 years ago
Reply to  Andrew

that’s why a massive heart attack before 65 is my retirement goal.

Bob
Bob
8 years ago

That was AWESOME! I had a good laugh at that one. Thanks

Aryn
Aryn
8 years ago
Reply to  Stacie

Exactly, the trouble with calculating how much you’ll need depends on a couple of hard to predict factors. The first is how long you’ll live. Will you live to 80 or will you live to 102? To some extent you can look to family history for a longevity clue, but it’s still a guess. The other factor is nursing care. The longer you live, the more likely it becomes that you’ll need at least one year of nursing care, but at the same time, dying at 80 could also required skilled nursing care if you have dementia or a severe… Read more »

Danielle L. Schultz, CFP
Danielle L. Schultz, CFP
8 years ago

I don’t think these numbers show that people necessarily spend less–it could be argued that after 75, people get poorer as their money runs out or they lose a part of Social Security due to the spouse’s death. BTW, that income won’t even begin to pay for the cost of nursing home or full-time home care, which will mean that anyone needing that care on these incomes will very quickly deplete any and all assets they might have. As to the question of what you need, take your current income (or whatever amount you think you need to live on),… Read more »

bareheadedwoman
bareheadedwoman
8 years ago

having had multiple grandparents/great aunts-uncles with Alzheimer’s … Give an adult child joint access to your accounts and put the house in their name. Otherwise the government will liquidate all real property just so you can stay in a horrendous state facility and your children may lose a family home they care deeply about. It may not bother those whose property sale will purchase top notch care, but for those it will not and families with multi-generational houses or jointly owned land, this is salt in the wound of losing a parent in the twilight. May not bother those living… Read more »

Ginger
Ginger
8 years ago

“They receive a higher standard deduction”, were in the 1040 is that?

Andrew
Andrew
8 years ago
Reply to  Ginger

Instructions for line 39a.

If you were born before January 2, 1947 (or are blind) there us a different, and substantially higher, standard deduction ($7250 instead of $5800 for a single person, for example)

Kris
Kris
8 years ago

These are all good ideas, but for the 75+ group, its a big YMMV. The way the society is going, with the obesity and all, more people should be prepared to spend their twilight days in the assisted living communities or retirement homes that provide round the clock help. Even at the current prices, the rent for these kind of homes is really high for an average person (I read in WSJ recently and I remember the number to be around $6K a month). So if you have another 30 or 40 years before you reach that age, you should… Read more »

Diane
Diane
8 years ago

I agree with several comments about the food costs. They can not be typical. I advise families on their spending habits and food is usually quite a long discussion. They only wish they could spend so little and still feed their family.

I also know of several families that are building larger homes instead of smaller homes to accommodate their grown children and grandchildren. Quite the opposite of scaling down.

Jenna, Adaptu Community Manager
Jenna, Adaptu Community Manager
8 years ago

I guess that is some relief to know I won’t need 100% of what I’m making now when I’m older. Although I do plan on living a long and healthy life. I just don’t want to outlive my money and burden my family.

Krantcents
Krantcents
8 years ago

Although I expect to have more in retirement, I expect to spend more too. Now I have one major trip every two years, it will be more often in retirement. No Social Security or 401K, but I will start to spend the savings built up from all these years.

nick
nick
8 years ago

this article does not take into account one major trend. today most children dont leave the house until they are in their 30’s. And when they do leave and have children – more and more grandkids come into the picture. Bottom line – it never ends!

Catherine
Catherine
8 years ago
Reply to  nick

“today most children dont leave the house until they are in their 30′s.”

This sounds like a pretty gross exaggeration.

rr
rr
8 years ago

I don’t know how the personal taxes which include federal and state income taxes are calculated but the numbers seem to be quite low. According to the table, a family making $79,589 only pays $3,323 in personal taxes which is just 4%.

cathleen
cathleen
8 years ago

I would like to see a post, similar to the groceries and household costs posts, regarding actual readers’ budgets. Would be very eye opening, with all the variations in family size, location, income, etc.

Josetann
Josetann
8 years ago
Reply to  cathleen

I’ll start. We’ve figured that at $1,500/mo, we could sustain our normal life in rural Tennessee. That’s including all utilities, food, going out to eat multiple times a week, paying for gas, etc. And there’s enough left over to still take a nice yearly vacation. Ok, so only $3,000/yr is left over for that vacation, so what happens if the car needs to be repaired? Either scale down that vacation, or don’t go out to eat so often. It’s possible because our house is paid for, car is paid for, no credit card bills, don’t need satellite tv (netflix is… Read more »

Julie @ Freedom 48
Julie @ Freedom 48
8 years ago

You’ve got a lot of great points there – but I also worry about inflation. $50,000 when we’re 40 years old will not be worth the same as $50,000 when we’re 75 years old.

Carleton
Carleton
8 years ago

Where is your proof to back up your writing that “most Social Security is not taxed?”

jim
jim
8 years ago
Reply to  Carleton

IRS Tax Stats document for 2009 “Individual Complete Report (Publication 1304), Table 2.1” indicates total taxable social security income from all tax filers at $99.8 billion.

SSA finance info says that outgo for old age benefits were $557 billion.

So only about 18% of SS retirement payments were subject to income tax. Its factual to say that he overwhelming majority of SS retirement benefits are not taxed.

Why would you think otherwise? Maybe you’re thinking about state taxes or something? State taxes vary 44 different ways and I don’t know what they usually do.

rr2
rr2
8 years ago

There is a useful FAQ list at the BLS website.

http://www.bls.gov/cex/faq.htm

Chris
Chris
8 years ago

Thanks again Robert for an interesting post. I’m nearing retirement and the post, as well as the comments, are helpful. I agree totally with the advice to look at your actual expenses and make some estimates as to how things might change. Then add some extra for those things that we can’t predict – inflation, health care, children moving home… As to the dire predictions for the continued inflation of health care. I truly believe that something will have to happen. When no one can afford it, the prices will go down or people will come to accept some sort… Read more »

Nicole
Nicole
8 years ago
Reply to  Chris

It isn’t like we’re getting nothing for the increasing health care costs. The bulk of the increase in costs is from better technoglogy (“Would you rather have today’s health care at today’s prices or 1950s healthcare at 1950s prices?”). IIRC, David Cutler estimates that about 2/3 of the increased costs go to better healthcare. 1/3 is waste. A big focus in the health care bill is how to get that 1/3 down while not hurting the 2/3.

Since it’s not just useless inflation, so long as we’re not immortal, healthcare costs can keep growing.

Jacq
Jacq
8 years ago

I did the math on the food at home: 25-34 35-44 45-54 55-64 65-74 75+ 2.9 3.3 2.8 2.2 1.9 1.6 3,338 4,255 4,369 3,681 3,213 2,643 1,151 1,289 1,560 1,673 1,691 1,652 96 107 130 139 141 138 1st row – # of people in household 2nd row – annual amount spent eating at home 3rd row – annual amount spent per person in household 4th row – monthly cost per person Older people may eat “less” (that conclusion looks doubtful based on the math – their cost per calorie must be higher), but their overall costs are right… Read more »

Jacq
Jacq
8 years ago
Reply to  Jacq

Also, per person, the average social security + pension for 65+ers is ~$13,500. That accounts for ~2/3 of their income and the rest is working or self-employment. It seems the average person should have to expect to be working past 65, particularly if they have very little saved. I would say that means that the conclusion that you don’t have to save as much is false – unless you want to be working at 65+. Sure, you don’t have to save if you’re spending 1/2 what you would at a younger age, but obviously *most* people aren’t saving enough –… Read more »

imelda
imelda
8 years ago
Reply to  Jacq

Yeah, I wonder about that. Wasn’t 65 chosen as retirement age for SS when the average life expectancy was more like 70?

It seems to me that we had a generation (or 2?) of people who were able to retire and party for 10, 15, 20 years, but that’s not sustainable. Not for a culture where inter-generational housing arrangements are uncommon.

I know health is an issue for some people, but from personal experience, I think most 65-year-olds are capable of holding a job?

Mary
Mary
8 years ago

I disagree with this article. I hope that in retirement I can live a rich life. I would love to travel extensively, entertain without limits, and enjoy a life of eating out and luxury.

I’m willing to scimp now in order to be able to live this way later.

Am I the only one that has these expectations?

Holly
Holly
8 years ago
Reply to  Mary

My dad started talking about retirement when he was 40. He died at 63. Since. Then, my philosophy has been to save some for later but enjoy the present too. I’d rather take a trip to Italy now than save for the possibility of two trips later.

stellamarina
stellamarina
8 years ago
Reply to  Holly

Plus those steep steps in old Italian towns are a lot easier to climb when you are younger.

Andrew
Andrew
8 years ago
Reply to  Mary

Life is not a cruise ship commercial.

Noreen
Noreen
8 years ago

I’m nearly 60 and own a share of my firm. Now, I don’t personally pay for: my car, my car insurance, maintenance on my car, gasoline, my cell phone, most of my disability insurance or any of my long term care insurance. Hard to imagine my expenses in retirement will drop to 80% of my current expenses.

Joe+G
Joe+G
8 years ago
Reply to  Noreen

You are an exception as you have a great deal of your personal expenses covered by your company (I won’t mention it to the IRS). Most people save simply by having no commute, no suits, no out-of-pocket work expenses.

Plus you might be selling your share of the business or continuing to receive income from it.

Kevin
Kevin
8 years ago

We eat less as we age

Do we? That’s not how I read that chart. Like you, I noticed that food costs dropped substantially in the elderly households. But rather than interpreting that as meaning people ate less as they got older, I instead interpreted that as demonstrating that people who eat a lot simply don’t live to be 75+. Obese people die younger, therefore the only people in the 75+ age group are those who never ate a lot to begin with. Without the obese people skewing the food budget average, the number dropped.

Nicole
Nicole
8 years ago
Reply to  Kevin

One of the research papers I’ve seen on the subject says food costs drop after retirement because people spend more time preparing things from scratch. So less processed food.

There’s also less eating out, but that’s generally a different line in the surveys of consumer finances.

stellamarina
stellamarina
8 years ago
Reply to  Nicole

I think it is bacause they have less money as they get older so they just spend less. Plus it is a lot harder to go shopping if you do not drive etc, and maybe by now you are getting free food at the senior center. My mother-in-law spent very little in her very old age between home grown veges and fruit and the free food give aways that had lots of seniors lining up once a month at the senior center. Lots of cans of apple sauce and bags of beans and lentils. Many very elderly also just do… Read more »

Kevin
Kevin
8 years ago

Another counter-point I’d add would be to keep in mind the impact of having the government “move the goal posts.” We’re experiencing this right now in Canada, where our government just announced that they’re increasing the age of eligibility for Old Age Security (our Social Security) from 65 to 67. So anyone my age (mid-30’s) who was planning on that $13,000/year ($6,500 per person) will have to adjust their planning. Who’s to say they don’t change it again in another 20 years? And who’s to say they don’t increase taxes to try and control the runaway deficit? I would be… Read more »

Jim from Ohio
Jim from Ohio
8 years ago

Article misses the picture & draws a false conclusion. Spending habits are personal. The real question is that if you asked each of those surveyed whether they are spending more or less than they did 10 years ago you would most likely draw a far different conclusion.

Will Best
Will Best
8 years ago

Every year the government lops off 2 years from the time when the “SS trust fund” goes bankrupt. The medicare numbers are even scarier because if you adjust them for the fact that they are never going to cut doctor reimbursements 30% it has somewhere between 8-9 years left instead of 12.

Basically expect the costs of healthcare to dramatically increase, at the same time counting on less replacement income from SS.

You will probably need to replace more like 90-100% of your income while counting on SS for a smaller chunk of it.

Jez
Jez
8 years ago

Ofcourse we’re going to need less in retirement (unless your healthcare is sky high0 because you should have little or no debt, thats all I work for right now.. and it sux

Russell Matthews
Russell Matthews
7 years ago

The comments here are excellent but it call comes back to each and every persons personal financial situation. For some, living on 15 or 20K/year if their house is paid off is fine. For others, that wouldn’t be nearly enough. Just be sure if you are thinking of retiring you live within your means and save some money for emergencies. The purpose in life is to enjoy it, however way and however affordable or costly you please.

Janice
Janice
7 years ago

Wow. What world do you live in? I have a college education and have NEVER made over $35,000 a year except one year. I’m 53, owe my life to student loans, and I’m not spending another cent on education (I have more than enough skills for many jobs) and I’ll be lucky to make 30k a year until I die.

lmoot
lmoot
7 years ago

I expect to spend MORE in retirement. In fact I HOPE to spend more in retirement. I’m not spending my days working, so I expect to be doing something else (and not always reading…even as an English major). If I am reading, it’s going to be on a barge in the French canal, or on the Orient Express.

I’m one of those who skimps and saves so I can have an early and lavish retirement. Or at least have frequent working “breaks” every few years, for 1-2 years each, until I die.

Piggybanknomics
Piggybanknomics
3 years ago

Typically, older people do not have commuting cost. They do not have to pay as much for fuel, train fare, tolls, oil changes etc. They are also not paying for work appropriate clothes and eating lunch in the work place cafeteria. Another point would be that older people do not have children in the expensive dance classes/sports teams etc. All these small things add up!

getagrip
getagrip
3 years ago

Considering some of the bulleted points. Fewer people under the roof, I didn’t realize until two had left for college how much the utility and food bills would be dropping. Multiple TVs, computers, lights, showers, etc. add up and food now lingers in the refrigerator. The mortgage while a smaller percentage of my expenses due to salary increases over the years, is still one of the largest monthly bills and getting rid of that prior to retirement will be significant. The >15% I’m saving for retirement along with the SS and Medicare alone will drive my needed earnings below 80%.… Read more »

Will
Will
3 years ago

This is a great, well thought out article. However, if you don’t mind my adding, one large factor was missed which is tax deductions or as most people know them “write-offs”. While in retirement, most retiree’s miss out on some of life’s LARGEST tax deductions. As mentioned above, the mortgage eventually gets paid off. Strike that one off the list. Also mentioned above, there are fewer “dependents” under the roof. There goes a second. & again, mentioned above, retiree’s stop contributing to their qualified plan. A third large deduction, gone. To add: typically any business ownership will be sold, therefore… Read more »

Jan
Jan
3 years ago

Living on 30%-40% (no mortgage) of what we made those last year works well for us. We have been retired five years (66 and 59). We have no plans to live in a luxury “independent living” place. Boring. Simple is better. We always lived below our means and saved the rest.
Financial planners love to keep people working so they can fill their pockets and plan for them. Read Mr Money and be free!

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