So you’re getting up there in age and it’s time to start thinking about retiring. Sweet. Can’t wait to drink Arnold Palmers and play dominoes all day. Well, slow down, my friend, because, first, you need to figure out exactly how much money you’ll need to save before you can finally retire.
The average amount most Americans will need to retire comfortably is $987,000. That number seems high because it is.
However, if you’ve been responsibly saving up and are prepared, this is completely doable. Read on to find out how you can make this number manageable, how to lower it slightly, and what you can do to get there.
Firstly, how much your retirement is going to cost depends heavily on the type of lifestyle you are looking to live. Obviously, more luxurious lifestyles in high demand areas are more expensive than a frugal lifestyle.
Figure out what kind of lifestyle would be most suitable for your situation, and start planning ahead of time. This will inform you how much to save monthly, and how expensive your lifestyle is going to be so you can foresee what kind of expenses you’ll need to pay over the years.
It is recommended that you downsize in many places as compared to when you were living your working life. The reasons for this are twofold.
- Your income is going to go down no matter what, so it is far more reasonable to live a frugal life than to continue living like you still have a job. Your income will now be fixed and it will work out better if you cut costs where you can manage it.
- By the time you’re retiring, your children (if you had them) or other family members should be out on their own. This will allow you to move to a less spacious house or apartment, as you do not need the extra space for the extra people.
Many retirees sell their homes and use the profits to put a lift in their retirement savings. In addition, they usually move to a less expensive area with more retirement-friendly services nearby. Like bingo…Sorry, we had to do it!
Ok, continuing on.
Throughout your working life, saving is the most important thing you can do to reach that golden retirement number. You should put away as much as you can afford to make your life easier during your sunset years.
Let’s say you consistently save money for 35 years and put away $400 a month for retirement over those 35 years. You will eventually accumulate $664,000, which is two-thirds of what you need to retire. Hitting this number is great, but not always reasonable, so get as close to it as you can.
Project your spending
The nitty-gritty. To truly be prepared for retirement, you’ll have to live in the nitty-gritty.
Know exactly what you’ll spend you’ll be spending monthly. Plus, you should break down your costs by category. This way you can see what you’ll need, what you might be able to cut in a pinch, and how much you’ll need to save.
On average, housing will be one of the most expensive costs per month. Depending on what state you choose to live in, housing costs vary very widely. They range from between $350-$2,500 a month.
In states like Alabama and Alaska, housing can cost as little as $357 monthly on average (Alabama) to $504 monthly (Alaska). More expensive states like California and New York will trend towards the upper end of the spectrum.
In retirement, some people will move to save money. They know a different part of the country has cheaper living costs, but some people choose to stay put. Just make sure you do what is the most cost-effective.
Food can cost between $300-$800 a month, depending on if you live alone, with your partner, or with other children or family. This number also depends on what kind of food you buy, with healthier food being more expensive on average.
This is not a place to cut corners in your old age! Eating well can help you save on medical bills and keep you active and energetic into your older years. Take care of your body and it can save you time and money!
With the lack of need for transportation for daily commutes, retirees begin to save a ton of money on cars and other transportation once they retire. However, this cost does not completely evaporate once you retire. You’ll still need to get to the grocery store and doctor’s appointments at the very least.
Every year, transportation costs on average $622 for elderly people in the United States. These costs include fuel and maintenance, but the more you drive the more these costs to go up.
Health Care is another expensive item that starts racking up costs in your old age. On average, retired people will spend $295,000 on healthcare costs from the moment they retire until the end of their lives. This comes out to around $3,800 every month on average.
It needs to be said, however, that health care can be an inconsistent cost, as health issues can come and go when you least expect. Eating well and exercising regularly to maintain your health in old age can significantly reduce these costs, so continue doing so even into your old age, as much as you can.
Entertainment is on average $200 a month for elderly people and couples in the United States. This includes television, magazines, books, and any other form of entertainment you can think of. Save some money for this as you grow older.
You may think this seems like a less important category, but with no daily activity or work to do, the mind can slowly start to slip away. Playing games and crossword puzzles can help keep Alzheimer’s disease away and keep your mental acuity intact.
|Housing||$350 to $2,500*|
|Food||$300 to $800|
|*Costs will vary considerably|
|**Cost will be irregular|
All these costs may seem daunting at first, but with proper saving as described earlier, social security benefits, and cutting costs where they can be cut, that average cost of $987,000 can be reduced or met comfortably by most American retirees.
So, start saving early and often. And make a plan for when, where, and with what standards of living you feel comfortable retiring. You’ll be glad you did when you make it to the place you want to be for the rest of your life.
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