Dollars and Sense: What the average retiree spends a month

Melanie Sedam of ReverseMortgage62AZ.com

Naturally, your spending in retirement will vary based on countless variables. Read on to learn how retirees’ spending habits tend to differ from the working population and how you can plan for your personal post-work needs.

Spending By Category: With fewer dependents and no work-related costs to worry about, you may have expected retirement expenses to be even lower than the BLS data indicates. In some categories, spending does indeed decrease, even in surprising ones like food. In other areas, like healthcare, life becomes more expensive as you age.

Here’s the data shown as a monthly breakdown of how households headed by a retirement-age person spend money, on average, in six major categories:

Housing and Utilities: $1,322 A Month: You may be close to paying off your mortgage, but housing is the biggest spending category for all age groups – retirees included. Some costs never go away, even if you have already paid off the home loan you previously took out. This monthly expenditure includes property taxes, insurance, repairs and maintenance, household supplies, and utilities.

Are you a retiree looking for some extra money? Equity release is a strategy that allows you to access the equity (money) tied up in your home. You can take the money you release as a lump sum, in several smaller amounts, or as a combination. To find out how much money you could be entitled to claim and to assess your eligibility, take a look at this equity release calculator by ERS.

Furthermore, are you unhappy with the rising cost of your utility bills such as gas, water, and electricity? If so, you might want to do some research into whether switching to one of the Reliant Energy plans could save you money.

Transportation: $567 A Month: People older than 65 do catch a break on transportation costs. The $6,814 annual average outlay, which includes the costs of gas, insurance and maintenance and repairs, is about one-third less than the nearly $9,000 that average households of other ages shell out each year.

Health Care: $499 A Month: Insurance premiums, which run over $4,000 a year on average for the 65-plus set, are a spending category that just gets bigger as you age, at least until 75 when BLS data shows costs dipping about $30 a year. While a financial assist from an employer may no longer exist, at least there’s Medicare to help.

Food: $483 A Month: This is another major budget category for all ages. Yet retirees spend nearly 20% less than the average household does on food, maybe thanks to more home cooking? Or capitalizing on the classic retiree early-bird special?

Cash Contributions: $202 A Month: Apparently with age comes a greater appreciation of one’s financial blessings. Retirees report dedicating $2,429 of their annual income to “cash contributions” (which include charitable donations), compared with $2,081 by the average household.

Entertainment: $197 A Month: Living it up without having to get up and schlep to the office early the next morning is a perk of retirement. Here, older households spend about as much on fun stuff as do those ages 25 to 34, but somewhat less than the broader average ($243 a month).

How This Affects Retirement Planning: A widely accepted rule-of-thumb is that in retirement you’ll need to replace from 70% to 90% of your income to maintain your standard of living. But again, that will vary depending on when you retire, where you choose to live, how long you live, when you start taking Social Security and a host of other factors.

Don’t wait for the first sign of gray to see where you stand. Pick the age you want to stop working, type in how much money you’ve saved so far and a retirement calculator will show how much in inflation-adjusted dollars you’ll have available to spend each month in retirement. Adjust the numbers to see how small changes in your savings habits now can have a big impact in the future.

I found an excellent personal monthly budget in an Excel format that can help you in preparing a budget for retirement. Simply email me at Melanie.Sedam@ThePaseoGroup.com and I will send it your way.

Melanie Sedam is the Owner of ReverseMortgage62AZ.com, a Reverse Mortgage Company that services the mortgage needs of 55+ communities in Arizona. Please refer to the advertisement is this newspaper for her contact information.