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How Much Do Americans Spend In Retirement?
Average Monthly Budgets Are Only Interesting If You Are Average. Hint: Nobody is Average.
Sometimes, when I’m chatting with folks about their retirement, the conversation turns to money. (Actually, if I’m honest with you, the subject comes up in just about every conversation I have on the subject of retirement.) People are freaked out about money. When talk turns to spending/budgets, the most prevalent question I get is “how much should I be spending?” Usually, what they really mean is “how much are other people spending?” I have always found it an irrelevant question and I’m not shy about saying so. Everyone’s values, priorities and lifestyles are different, so everyone’s spending will be different. The important question is what does YOUR budget look like and how can you impact that if you need to? I wrote about how to determine your budget and strategies for lowering it in this newsletter.
OK, lecture over. The other day I was looking at my spending. My utilities and groceries were way more than I wanted them to be. I thought to myself “I wonder if I’m an outlier? How much does everyone else spend on utilities and groceries?” Lightbulb moment. Maybe there are times when a benchmark number might be relevant. So, I did some research. Wanna know what I found?
Summary of averages
The Bureau of Labor Statistics put together some benchmarks for the “average” household monthly spending for folks 65 and older across the US. They looked at “essential spending.” They concluded that “a household run by someone 65 or older spends on average $52,141 per year (approximately $4,345 a month). $1,573 for housing (including utilities), $597 for transportation, $586 for health care, $541 for food and $238 for personal insurance.” Non-essential spending such as gifts, travel and entertainment were not included in the BLS study. Market Watch benchmarked entertainment and concluded the average individual over 65 spends approximately $240 per month on that expenditure. (Already, these averages are not indicative of my spending. Transportation is always way less than entertainment and leisure for me, for instance.)
The averages are interesting to look at, but have limited relevance because they are average across the entire US and per “household” which may differ in size. If you live in a higher cost (or lower cost) area, it could be more interesting to either look at more local statistics (here’s information for California, for instance), or to look at percentages, rather than absolute numbers.
So, I went in search of percent of budget splits by spending category. Two articles I found, one from Fulton Bank and one from thebalancemoney.com have similar budget splits. These results, though very generalized, helped me see that my grocery spending was probably not out of whack, but my utility spending might be. Good information, even if it does require some more digging.
Here’s Fulton Bank’s take:
Better benchmarks are your own spending
At the end of the day, I could use these studies, benchmarks and averages to find places to dig a little deeper into my budget only because I knew what my actual spending was and how it was trending. Based on my personal information, these numbers are interesting for calibration, but they are NOT interesting for setting a budget in the first place. I’m afraid that’s going to take brute force on your part to figure out where your money is going and if you’re comfortable with your spending given your values and priorities. No benchmark is going to tell you that. Oops… I said lecture over and then I started up again, didn’t I? Sorry about that.
I thought I had a pretty good handle on my budget before I retired and I thought I knew where I had wiggle room. I might have been a little cocky. Here are two mistakes I made in my pre-retirement budgeting.
Forgetting the big ticket items
When I set my budget for retirement, I looked back over the past 2 or 3 years to figure out how much to set aside for “big ticket items.” These are large expenditures that don’t hit your monthly budget, like property tax (if you’ve paid off your house), a new vehicle, or a trip to Tahiti. I thought I got a pretty good average and baked that into my retirement budget. Well… first of all, selective memory is a real thing. The smaller “big expenditures” like a new laptop, slipped my mind when I tried to remember what I spent on the big things, but they add up. Secondly, history is not necessarily indicative of the future. You will spend more on your health than you ever have before. Budget your entire deductible and maybe even a buffer for dental and/or vision surprises. You’ll also get other surprises and opportunities in retirement that you don’t plan for. This year alone, for instance, I’ve needed a new fireplace, garage door and pool pump, and I’ve also found a screaming deal or two on travel that I couldn’t pass up, since I have flexibility now to take advantage of these deals. I budgeted for big ticket items, but I under called by, maybe, a third to half.
Believing retirement will drastically change your spending habits
I thought, “hey, if I ever need wiggle room in my budget I just have to change ‘x’ in my budget (not going out to dinner, not going away for the weekend, not inviting my friends over for meals, giving up my expensive hobby, etc.) and I can cover it all.” Well, my friends, changing your lifestyle, even if all that means is getting more blankets for the winter nights and turning off your heater, is a commitment. You don’t retire and all of a sudden love the tedium of cooking your own meals or doing your own plumbing. (By the way, I love cooking my own meals.) Changing the way you spend your time and resources is as hard as changing your diet or the way you exercise. It takes real commitment every day and changes in lifestyle are not “easy” simply because you retired. It’s important to be realistic about what you are willing to do to change your spending if needed. (I’m OK with inviting friends over for potluck, rather than going out on the town, for instance. And shopping is a category that I can always dial back, if needed. That shiny new paddleboard is still going to be there next year and my ink jet printer will limp along for another year or two. But that’s me.) Know where you can tweak and know that, if you need to materially change your budget, you’re going to have to materially change something in your life and it’s going to take commitment. I overestimated my appetite for downshifting my lifestyle.
The most important thing is just to have some kind of stake in the ground
Budgeting is important. Being willing to look hard at your budget and figure out where you can (and can’t) impact it is important. Aligning your budget with averages is not. But if you look at benchmarks and percents and you’re way out of whack, maybe ask yourself why.