How an Extra $1,500 a Month Can Reshape Your Retirement
Oh, what a difference $1,500 can make.
Retirees who depend almost solely on Social Security might be able to scrape by, but not much more and only in the most affordable regions. Conversely, those with enough savings or income to match the typical monthly benefit for double the average payment can retire much more comfortably with far more choices of how and where they live.
The following lifestyle comparison outlines how a nest egg that supports $18,000 in extra annual spending, or $1,500 more per month, can reshape a retirement.
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What Is the Typical Retirement Budget?
According to the most recent Bureau of Labor Statistics data, the average annual expenditure for households run by people ages 65 to 74 is $65,279. At age 75, it drops to $54,454.
However, since a few ultra-wealthy outlier households increase the average, the median — which CBS News cites as $47,000 annually or $3,900 per month — is a more realistic indicator of how typical retirees live.
According to the Social Security Administration’s most recent data, the average monthly benefit is $1,932.80. Lower-income retirees who can add only $500 or so to that per month — perhaps from a modest pension, an annuity or a small nest egg — must live off of just $2,500 per month or $30,000 per year, which is a tall order in 2026 America. Those with the means to double the average payment, however, have $4,000 per month or $48,000 annually to work with, putting them ahead of the median retiree.
Tough Choices and Few Options on Housing Alone
According to Rocket Mortgage, most financial planners recommend spending no more than 30% of your monthly income on housing. For the retiree with a $4,000 budget, that’s $1,200 — enough to get by in many affordable to moderate markets.
On the other hand, the retiree with $2,500 must make do with just $750 for housing, which is an impossibility in much of the country. In many places, that wouldn’t be enough to cover property taxes and homeowner’s insurance alone, even if the mortgage is paid off.
Even if they pull it off, that leaves just $1,750 for everything else, including needs like healthcare, transportation, food and utilities. That leaves almost nothing for discretionary spending, while the $4,000 budget leaves room to spend a few hundred dollars per month on wants like hobbies, dining and entertainment.
It’s Not Just Housing, but Where That House Is Located
According to the World Population Review, the average U.S. household spends $61,334 per year. However, Fidelity finds that typical retirees spend between 55% and 80% of their pre-retirement income, the average of which is 67.5%.
That means, nationwide, the average retiree would need $41,400 to live comfortably — $6,600 less than the retiree with a $4,000 monthly budget and $11,400 more than the retiree with just $2,500.
The Economic Policy Institute’s Family Budget Map shows a visual representation of living costs in all 3,143 U.S. counties, including not just housing, but food, transportation, healthcare, taxes, utilities and other expenses. The map presumes a two-parent, two-child household. When the average for each is reduced to 67.5% for retirees, it becomes clear that retirees with a $4,000 monthly budget could live comfortably in roughly half of the counties in America. However, those with just $2,500 would be hemmed into a handful of counties with the lowest cost of living, nearly all of which are in declining rural outposts in the South and Midwest.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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