Social Security benefits are the only source of income for about 20% of Americans who are 65 or older. Retirees struggle when they must live on their Social Security benefit alone. The average benefit is less than $1,800 per month.
About half of all Americans who are 65 or older receive 50% or more of their income from Social Security benefits. Some seniors supplement their Social Security benefits with income from part-time employment. Seniors who no longer work at all rely on retirement accounts, investment income, and savings to meet living expenses that exceed their Social Security benefits.
Retirement Planning
Planning is critical to a successful retirement. Electing to join an employer-provided retirement plan and contributing the maximum percentage of income that the plan allows is a good starting point. Unfortunately, many retirees find that their private retirement benefit plus their Social Security benefit falls short of the income they need to maintain the lifestyle they enjoyed before they retired.
The earlier workers start to save their money, the more return on investment they will earn. Workers who don’t supplement their employer-provided retirement plan with retirement savings are cheating themselves. It isn’t easy to save money, particularly for parents who need to meet the expenses of raising children, but savings and investments are critical to living well after retirement.
Unless a worker is unusually knowledgeable about finance, it pays to seek the help of a professional retirement planner. Yet a recent survey shows that 62% of Americans who have reached the age of 50 have not obtained professional advice about planning for retirement. While another 29% of Americans over 50 plan to consult a professional within the next five years, it is difficult to accumulate significant retirement savings if retirement planning is postponed until workers are in their 50s.
Advice from a financial planner isn’t necessarily expensive. Financial planners tend to earn most of their income from wealthier clients, but it’s possible to find a certified financial planner who, for a reasonable hourly rate, will assess a family’s cash flow, savings, insurance needs, and likely Social Security income. A financial planner who isn’t trying to sell financial products or to earn commissions is in the best position to give honest, conflict-free advice for about the cost of a year’s investment in cable television.
Spending After Retirement
Retirees generally don’t need the same income after retirement that they earned before retirement. Financial planners generally agree that retirees will be able to cover their expenses if their post-retirement income is 80% of their income prior to retirement. Applying that formula means that a person earning $70,000 before retirement will need about $56,000 per year after retirement.
In 2021, Americans over the age of 65 had an average income of $55,335, and average expenses of $52,141. Seniors who plan to meet their post-retirement expenses should keep these averages in mind:
Housing. People who are 65 and older and who do not own a mortgage-free house spend an average of $18,872 on housing. Seniors may be able to reduce housing expenses by moving to a more affordable community or a smaller residence.
Transportation. The average transportation expense for a retired couple is $7,160 per year. A couple with two cars might be able to save insurance costs by becoming a one-car family. Using public transportation may also reduce the expense of purchasing fuel.
Health care. The cost of health care adds $7,030 to a retired individual’s annual budget. Unlike other costs, the expense of health care is often beyond a retiree’s control. A good diet and regular exercise are key strategies to staying well and avoiding the need for expensive procedures and medications.
Food. The average retiree spends $6,490 per year on food. Planning meals and minimizing visits to restaurants can help seniors control that expense.
Utilities. Since seniors typically stay home during the day after they retire, they tend to spend more on utilities. Older adults should plan to spend $3,921 on utilities after they retire.
Of course, after the necessary budget items are covered, seniors will want to have some money left to spend on travel and entertainment. Saving money during prime earning years enables a more pleasurable lifestyle after retirement.