It's $35,000 for me without scrimping. I own my home and have medical insurance. I am 89 years old and have funds to cover any unplanned expenses. Good planning is essential.
@@davidfunvideos I would have paid $1700 a month for rent instead of $500 a month for property tax and and upkeep expenses. Even if I had to rent, I could have still lived comfortably. As it is, owning a mortgage free home reduced my yearly living expense from $45K (if I had to pay rent) to $35K. My pension and SS income is $45K. So I get to save $10K by owning my home plus any appreciation on the house (which has doubled in price).
@@PranaWealth I didn't mention that my investments, IRA's, bank accounts, etc. have all been left untouched except for a couple of RMD's, which just get rolled over into my bank account. I hope that people reading of my experience would try to duplicate it. I never made more than 50K or 55K during my working years, but I do save and spend wisely.
Paid off my mortgage last year at 64 and retired this past January. Was VERY frugal with my money in the beginning months but began to realize I spend less than I've budgeted. For what I took home from job, I found I needed about 20% less of that in retirement. No debt at all and any that's incurred is paid off at month's end. For those wanting to retire but don't think they can, I suggest you create a budget the year before you retire. It helped me quite a bit to understand if my post-retirement income would be sufficient. You really can live on less without having to sacrifice much. And being retired with no debt is like a dream come true.
Yep, we are on the same wave length. I didn't retire until my calculated retirement income was equal to 80% of my take home pay. Of course, I'm assuming that the take home pay was sufficient to cover the expenses.
Scot: thank u for this insight. I'm currently 51 and starting to plan for retirement age of 65/67. I'm working on paying off my home by age 65 sending in an extra $600/month towards principle. I have no debt since about 2009 other than my home. I'm also contributing roughly about $900 into my 401k. I have a pension from a job I had in the 90's that I should be able to pull from upon retirement and a pension that I'm currently working on in my present job. I think I should be fine as long as my home is paid off. Thanks again and enjoy ur retirement
@@lareggiejones6617 Yes, I find that tracking my expenses helps to keep focused and know what I have during the month/year to spend on the less required expenses. Again, for me it's all about making sure I have no debt and any I do incur is paid off each month. Otherwise, I don't incur it. I have tried to budget enough every year in my bucket for those unexpected expenses. Somewhere along the line, I'm sure I'll get one not covered by that bucket (like a new car) but for now, I'm sticking to my budget pretty consistently.
Many years ago an "early" retired couple told me: it's expensive to have a job. I've found that amusing choice of words to be very true. This alone accounts for most of the 80% rule of thumb. But the 80% mark applies only if you insist on continuing to live in the same expensive suburb, with 2-3 cars, and not knowing how to have fun without paying some business to entertain you. I lived below means and built up investments but divorce and remarying has put me waaay below the millions we're haunted in to believing we need. We moved to a lower cost better quality of life area and have a very active and entertaining life mountain biking, hiking, backpacking, kayaking, dancing, and numerous other random activities. One car is plenty. Because we moved near to where we can do our fun that one car usually sits in garage for 1-3 days without either of us driving it. We are both much more physically fit than before our retirement. The only thing we're missing is having more people to do all of these things with us.
That is awesome! I love the outdoors, especially mountain biking. It sounds like you have a wonderful retirement! 🙌 You are absolutely correct -- it really does all come down to DECIDING what makes us fulfilled. The Latin root of the word "decide" means "to cut away". At the end of the day, our happiness and fulfillment are what we decide they are. Someone once told me, "you can have anything, but you can't have everything". I think that pursuit of "everything" is where people get crossed up. Great comment! Thank you for watching! 🙏
All of these Prana Wealth videos are articulate, substantive, practical, and "bite sized." The information is both common sensical yet new to folks such as myself.
Also consider the savings! No more funding my TSP. To busy doing the things I love so cut the TV cord. No more cable or Dish bill. Seldom eat out... I love to cook and have time to cook for myself and guest. Love your retirement. Your time being YOUR time is more precious than money
One thing for sure…no need to buy more “things” for the house and “gotta have” impulse purchases because you already have more material items than have use. Enjoy good health, the most important. Thanks for the info.
Anytime, SeaLisa! You're right -- "stuff" only makes you so happy. Spending your time and money on experiences is a much better investment. Thanks for the great comment! 🙏
I retired last September, and found that I have not need anythings I used to buy while I was working. No clothes, shoes, handbags, commuting cost, lunches, snacks, dinner out with coworkers. I am actually living on less than before, even with the cost of medical insurance. Sold and donated stuff.
I will be retiring next year before I turn 60. My budget is less than $3000 per month. No mortgage, no bills. It's not how much you have, it's how much you spend.
Hello. Thank you for your presentation. I retired just this year. A few comments. It is better to use median values and not average. Numbers differ depending where in the Country you live. I am in CT where the cost of owning and maintaining a home is expensive considering property taxes, heating and upkeep. Retirement should not be stressful financially if you know your expenses and factor in inflation (god help us all).
I always thought most of that reduction was from not having to pay towards savings anymore. If you were contributing 10 to 15% pre retirement then that goes away once you retire
This is very encouraging. We are retiring - well, the primary earner is, I’ll still take on interesting design jobs when I want- this month at 60, we own our home free and clear, very low property taxes (California bought 25 years ago) even though it’s worth a ridiculous amount of money, two cars, very low utility bills (100% offset solar PV) and essentially zero debt. I honestly don’t think we spend much more than $3k a month right now because we are not traveling or going out. That will definitely change as things start opening up more but we’ve got an investment account that our financial planner has us to get $8k/month. Healthcare is the big mystery for a while until we get that worked out but it looks like we definitely will be able to swing it and even tuck under the income limits to get a subsidy until Medicare kicks in. There are no guarantees but life is looking good and hopefully about to get even better. We’ve lived a frugal and conservative life for decades and managed to build up a substantial nest egg that we can now not worry about saving every penny and start spending.
@Tpolerex -- it sounds like you're making all the right moves, especially if you have a financial planner to help you. I like the idea of taking the fun design jobs as the come along. Good luck and congrats! 🙌
I think I will be on the left side of the smile curve with higher initial retirement expenses. Then drop down as the slow go years hit. For example I just bought a vehicle to do some traveling in. But later I don't expect as much traveling. Since I retired near FRA I have a significant amount coming in from SS and I don't need all my current dividend income. Most of it I reinvest.
While working I paid FICA 7.65 + Pension 10.9 + State retirement insurance 1 = 19.95% taxes that I no longer have in retirement. Plus about 9% into other retirement accounts. My house was only about 8 % of my gross income ,not the 20-30 percent many people pay. Paid that off before retirement so I didn't need to replace 80 % salary but I did need 92 % take home pay which was 51 % of my salary. I'm fortunate in the pension covers about 50% plus covering the insurance premiums. IRA's for for any small extra and SS as an insurance policy. Retired at 59 turn 62 next year, but will wait on SS unless some emergency comes up.
Thomas, that's awesome. It sounds like you did a great job of saving in spite of all those taxes. Having that pension is nice, too. If you don't need the cash from Social Security (and feel like you can live past your break-even age), then delaying your benefits may be a good move. 👍
I can drop my spending by more than 20% because I am currently saving over 20% of more net income each year. I am 5 years away from retirement and have started adjusting my spending upward by enjoying a few things in pre retirement life.
20% is fantastic! Great job on saving that kind of amount every year. Sounds like you're in a fantastic spot. Definitely invest in some great experiences along the way! 🙌
I am retired & a widow. Sold my home & bought a new one level Townhouse for cash in a nice neighborhood with people that are mostly my age. All outside maintenance is taken care of for me. Big burden lifted!! Also I am near all 3 of my children which is great!! I am fortunate to have a pension & that added to SS & a 401K makes me quite comfortable. No outstanding debt other than normal household bills….electricity, water cable, cell phone & health insurance which my former employer subsidizes. I’m living my best life & enjoying my retirement!!
0:34 $10,000/month is $120,000 a year. That's equivalent to a job that pays $170,000 a year depending on your state. The average household income today is around $69,000 per year. Most people, even those with high incomes, aren't going to spend $10,000/month in retirement.
I hope to increase my spending in retirement (at least for the first 10 years). I am 55, and Friday was my last day at work! My annual spending has been around $40k and I am planning for an additional 20k to 30k above that. The various financial calculators I have used show that I could be spending significantly more, and I will adjust as I see what is happening with my investments and become accustomed to the new situation.
@@splinefusion6986 initially my discretionary spending will be on things like road trips in the travel trailer I built (converted a utility trailer). We have taken a few multi-week trips in the western US, and now planning a trip to Mexico and Alaska. Most of my planning scenarios have been to the age of 80, but the models indicate my planned spending level will never exhaust my capital base.
Newbie here, but are the health care costs quoted here per person or couple? I would like to know more about health care plans on the exchanges--advice for people who have shopped and used them. Before medicare, how do you navigate healthcare including drug costs? I've learned that it's very difficult to plan for an insurance company's next year formulary (drugs they will cover). A video on gapping health care strategies until age 65 would be extremely helpful ( or other suggested links). Been to ACA site but found hard to navigate to find real practical answers, would be better to hear from actual purchasers. Great videos, Prana Wealth, thank you!
Seth, I've been doing this for years and I've seen replacement percentages all over the map. I think anywhere between 80% to 100% would be a good starting point for pre-retirement planning. That being said, it's probably good to trust your situation. Thanks for the great comment!
Better to throw out high numbers and you have more money than you need rather to low ball it and run out of money. That being said, this is something nobody knows for sure so having a working knowledge of your pre-retirement spending is a good place to start. You can do it with less but it's easier with more.
My husband and I are retiring and I have figured a budget, analyzed our investments, and sought investment advice. It is still worrisome, considering inflation, taxes, and medical expenses.
Margaret, it sounds like you're doing everything that you need to do. If your advisor says that you and your husband can safely spend what you've budgeted, then you should be fine. Things will always change. All we can do is make the best decisions with the information we have today. 🙏
My spending easily dropped when I retired by about 20%. But then my mom broke her hip and I spend more now than when I was working. Good news is I'm still positive in cash flow because of the stock market. Keeping fingers crossed.
Lee -- sometimes unexpected things come up. Sounds like you planned well enough to handle it. Also, good to know that your expenses dropped by 20% initially. Hope your mom has a speedy recovery! 🙏
I retired at 62 and we limit our gross income to less than $89k up here in Alaska. That way we qualifiy for subisidize health insurance under Obamacare. Our subsidized Blue Cross Gold policy cost less than $1,000 per year. The same policy would cost over $27,000 per year unsubsidized. Thus by limiting our income, we saved over $75,000 in 3 years until medicare kicks in.
We will be budgeting $110k to $120k including an increase in travel, etc., starting in 4 years and a month. This is intended to be future dollars. Have cash we could use to pay off the house invested instead, earning well more than the interest expense on the mortgage loan. No other debt.
Awesome, @meesacreef ! It's a strange time -- usually, I try to get folks to pay off their mortgage before retirement. However, now that interest rates are so low, folks can just let their mortgage payments inflate away. Crazy times, huh? Good luck getting ready! Retirement will be here before you know it!
Spending has declined due to the pandemic, even though I am age 63. Needing only $2,600 -3,000 per month. The largest expense is medical insurance at $1220 per month.
ours is 35% or 57k and thats with a mortgage which will be paid off 4 yrs into retirement in 2028 and then will be at 30kok 18%. lucky we have military retirement, 401k's ira's roth's and brokerage. these last few years we will be super savers getting ready for 2024.
Very interesting information. It supports the approach of budgeting your expenses in three buckets, go-go years, slow-go years and no-go years. My estimates are very close to the numbers you provide with the exception of the no-go years. The problem with the statistics is that it lumps everyone over 75 together. I would argue the no-go years start in your 80's when you lose the ability to drive safely. It would be useful to have another decade of data above 85. DO expenses go down or not. I assume so but might be wrong. The fact that healthcare expenses are pretty flat is very encouraging. We should be able to budget with reasonable accuracy once we see what our spending is when we retire here in the next year or so.
I think your second paragraph where you say the problem with statistics is the right answer. Remember the famous saying "Lies damn lies and statistics" Read these studies carefully especially on who they studied. One study I read actually studied people based on their food outlays as they got older as a proxy of overall spending.
We are 46/47. I think income based spending calculations are useless and we are keeping a strict spending budget to track every penny. We feel this is the best way to figure out where we need to be. We even have a “theoretical budget” such as a new car every 8 years and a new geothermal system every 20 years. We really aren’t that worried about retiring early because we like what we do and also own businesses that we can live off of but it doesn’t hurt to plan for the future. My point is that actually tracking g real time expenses is necessary.
Great video and good benchmark to have to help guide people on how much to save for retirement. I think national spending data in retirement can be misleading. Older retirees that are no longer working and living on a fixed income such as Social Security or pension income spend less in retirement because they have less in retirement. It's not necessarily because they need to spend less. Per the video, the average spending for age 75+ is $40k a year, that means half of retirees spend more than that and the other half spend less than that. The average Social Security check is less than $1430/month or $17,160/year. That amount won't go far in retirement if it is your only source of income. Pay yourself first and save and invest towards your retirement. If you wind up not needing it in retirement, then great, you're ahead of the game. At least you have Peace of Mind.
Catherine, you bring up a fantastic point. You're right -- these are just average spending numbers. I'm absolutely certain that there are other factors in play, so I tried to add caveats to the discussion. They may have lower expenses due to lower incomes or they could have family members paying for expenses. One interesting thing to note, for the 75+ age group, one standard deviation was $820.21. If the mean expenses are $40,839, then 95% of those surveyed would fall between $39,197 and $42,479. Seems like a pretty tight window. I'm wondering who was surveyed and how they found the participants. Finally -- you are absolutely right! It's all about spending less than you make and investing the rest. It's not sexy, but it works!
Not yet retired at 58. I don’t think my expenses will change much even with a paid off house if we plan on traveling, etc.. expenses would drop if we did nothing, but just live in our home
if you are retired, you dont have to pay FICA tax, you dont have to stash money in IRA/401k, those along will probably account for 20% saving. so if you continue your same lifestyle, your $ requirement should be 80% of pre-retirement phase
Thomas, that accounts for a lot of it, but I think it may actually drop beyond that. However, it's hard to draw conclusions from some of these numbers since they're averages. Thanks for the comment! 🙏
None of the statistics you showed surprised me a bit. Financial planners gather more clients by being advocates of the retirement “crisis” that supposedly exists. There are a great number of people who haven’t planned out their retirement adequately, but there are also many who have more than enough, despite what is often cited. Planners who abide by the same % factor for every year of retirement, are doing their clients a disservice. 65 year olds spend more than 75 year olds & 75 year olds spend more than 85 year olds. If you’ve planned out your Medicare costs properly, you should be fine.
You bring up some good points, Mark. There's definitely a slowdown in spending, however some people do see an increase in medical care costs with age. However, based upon these numbers, it looks like it's not as much as I'd expected, which I found really encouraging. I can say that -- at least in the fee-only advisor community -- there's no intentional scare tactics. I can't speak for the brokerage or insurance folks.
My budget starts off with $5,000 per month for non-discretionary fixed and variable and $2,500 per month reserved for discretionary fun stuff assuming we get to travel ever again.
Been retired for 7 years and I have no idea how much we spend. My wife (former banker) and I have a system that works for us. She's finance and I'm transportation. All I know is that I want for nothing. At that point the number does not matter.
I spend about 15,000 per month just before I retired, at age 58. I am 59 now and just making a move from NVA to Florida, selling my home and buying one in Florida for cash my expenses have dropped below 10K per month. Even though 2K goes to payments on my dream car a 2021 Porsche Boxster GTS 4.0. This will be paid off in another two years and then that money will be going towards vacations/trips. By far the savings come from (no state income tax, no mortgage)
@@PranaWealth It simple really. No mortgage (by far the biggest expense on retirees according to the data) no state income tax, no work lunches, kids out of college and both got great jobs.
I plan on paying off my house before I retire, but if I retire before 65, I've heard that health insurance could cost as much as $1500-$2000 per month for me and my wife. Won't that cost offset some of my mortgage savings? I currently pay less than half that with my current job. Am I missing something?
William, unfortunately, you're not missing anything. Those health insurance premiums aren't cheap. You'd have to price out health insurance yourself, but I wouldn't be surprised if it's in that price range. You could always go check out at healthcare.gov -- it's open enrollment right now.
@@williamdeisenroth1067 I am paying 2,100 per month for Cobra that is about to expire. Being Greek I have lined up insurance from Greece for about 4,500 Euros per year that pays 100% hospitalization and drugs but no doctor visits in the US. Not a problem for me as I go to Greece every summer and the wife and I get all our yearly tests there. Don't ask me why I got the Cobra, it was a pain in the you know what with Covid to travel and setup the insurance in Greece last summer but this past summer I got it done.
Zero debt, (only utilities, taxes, etc), a pension, a 401k, an IRA, mutual funds and savings to last 2.5-3 years. Husband has Medicare, delaying SS. My biggest dilemma is can I retire at 61? My biggest concern is healthcare cost prior to Medicare. We want to move and are free and clear to do so, (avoiding capital gains), in 9 months, (I am counting!)
In my situation, I'm spending more in retirement because I have more free time. But on the positive side, I don't need as much income because i no longer have to save for retirement or contribute to Social Security. And while your working, it can be tricky to determine how much you will spending in retirement because it's difficult to simulate how you will behaive with all your free time. It took me around 6 months in retirement to get a decent estimate on my spending.
I have been retired now for 5 years and in my late sixties. I am spending more than when I worked but most of the increase is giving. My basic expenses take only about 40% of my working income. I have no debt and own outright my home. My net worth so far has increase most years. It is a ruse that you need 80% of your income to retire on in my opinion. But you may want to be able to spend at that level for things like travel and giving to things important to you.
Stephen, congrats on a great retirement! 🙌 I think one thing that I'm hearing is that there's a vast disparity on retirement spending. Some people spend way less and others spend more. I think there's a large standard deviation around some of these averages.
If I am living in a paid off house in my retirement years then for sure I won’t need as much monthly cash. My goal is to have more money in retirement to spend than I currently have now.
Great video. What accounts for the decline in expenses after 64? If the reduction is mostly mortgage related, then what adjustment should be made when one has a paid off home?
Thank you! As far as the reduction in expenses go, it looks like it could be a combo of mortgages rolling off and a general reduction in lifestyle expenses. I think the "average" could vary greatly, depending on the individual...
Ha! Glad you have some kiddos who are protective! I'm seeing more and more folks saying that 80% is probably a good number. Thanks for the comment, Jay! 🙏
I went to a financial planner, and it took awhile for me to find all my acounts, values, etc. They looked at it and before BIDEN they said, you can retire. That is the only reason I knew. But since I was healthy, I tried to keep working..but the commute sucks so I want to stop. Going into the office costs me $60/day.
@@A.Musa76 you should look - there are videos, and a former boss said it's 1%, some are fee based, and the first person wanted 1.1%, really ?? That is why I am still looking...yes, even today watching and learning and setting up meetings...
I never quite understand why income replacement percentage rule is useful. This implies that people always inflate lifestyle with income. This may be the norm but lots of people I know maintain the same spending even when their income doubles.
Is following Dave Ramsey's plan a good way to have a better retirement life regardless of your age when you start? I'm 53 now started doing this when I was 50
David -- I really like Ramsey's approach to debt. I don't always agree with him when it comes to investing, but his advice is solid. I think the most important aspect is actually having a plan -- whether it's Dave Ramsey's, FIRE, or some other method -- and sticking to it. Thanks for watching and leaving a comment! 🙏
We're in our late 40's/early 50's and I'm afraid that there's no way we can lower our spending by 20% in retirement...because we're only spending $2,000/month! The funny thing is that I could shave another couple hundred off of this without too much trouble but why bother? This doesn't include our Roth contributions which isn't really "spending" but I suppose that would be roughly a 30% drop.
Im looking at expenses of apx 3000-3500 in retirement. This includes my mortgage monthly bills, medical, food and adding a bit towards small day trips or a yearly vacation. I will have between my pension and SS after taxes apx 3500 a month. Depending on a lot of variables between now and then I should be ok. I have an emg fund and a small 401k. Ill prob have to keep working at something but thats ok. Im not one to sit around doing nothing.
Rich, it sounds like you have things mapped out pretty well. If you can pay your expenses with your pension and Social Security, that really is an amazing scenario. Sounds like you'll be just fine! 🙌
I assume those retired spending numbers do not include tax. I figure at $120,000/year, income tax and property tax alone will be around $30,000-$35,000
Retiring early and in those earlier years we will spend more than what we spend now because we are allocating an additional 20K a year to travel. So our "spending" will be about 150% than pre retirement. But that's fine because we currently live on less than 1/5 our gross income. With everything paid for and not having ANY debt for about 10 years now, our household expenses are low. As we age and do less travel, then our spending will come down and be 70 to 80 % of working expenditures.
Holy smokes, Bob! Living on 1/5 of your income is incredible! Also -- congrats on being debt free! Feels good, right? 🙌 Enjoy that travel. Where's the next trip? We're scheming to get back to Italy in 2022.
@@PranaWealth looking to do a Rhine river cruise in June.. when we retire early, in about 1 to 2 years. We are going to spend summers in Ireland and Scotland. Been there and loved it. Winters in Panama and New Zealand
I retired as a widower at 55. Never made the big bucks but always played ourselves first. I share a residence in the states,but live on half of my income abroad. Life is so less stressful here. But no insurance, don't like to live in the what if world.
Darlene, I'm having more and more interest from clients wanting to retire abroad. It looks like the expenses can be much, much lower than here in the States, depending on where you go. Where did you retire to?
Like many I plan to have the 1, have the house paid off and 2 downsize as we just won't need the space required for raising a family. Lower taxes and many expences associated with a larger house will easily be reduced. Will we need two cars? We will still be able to take trips but now at more oportune times to take advantage of deals. I am thinking 70% or less.
I retired at 59 1/2 and my husband will be retiring at the same age next year. My husband is a retired military so we only pay $300 premium a year, and maybe spend less than a thousand on years where we had surgeries. House is paid off, 2015 & 2017 cars both paid off. Our yearly expenses incl property tax, home insurance, car insurance, food $1000 a month , etc. amounts to about $25 grand. Yes! I maintain an excel file for budgeting, tracking assets, investments etc. I believe by the end of the year, we would have about $75 grand in savings. Stock piling cash for next 4 months until my hubby retires in April. Hoping that we wouldn’t have to touch portfolio for at least a year or more. Wondering if we are thinking this right, as I hate leaving big amount in savings that are not earning nothing. Any recommendation on High yield Savings accounts? 😊
I forgot to mention. My husband receives about $1500 in military retirement a month ($18 grand a year) and still works full time, and if we take SSS at 62, our estimated SSS is $32 grand. So Annual income from both of about $50 grand is more than enough as we are not big spenders, which means we might not have to touch our portfolio. Still contemplating of when we should take Social Security… I believe we should be OK in retirement.
@Toria -- congrats on paying off the house! 🙌 It sounds like you've got a great plan in place. If you're worried about a high-level reality check, I created a downloadable spreadsheet where you can go over some of these numbers and check for yourself. Here's a link: pranawealth.vipmembervault.com/products/courses/view/17 With your husband's service, the pension and healthcare benefits will be a huge help in retirement. We are thankful for his service! 🇺🇸🙏
Retired in Jan 2020 at 54...My spending was offset by the fact that the pandemic prevented me for fulfilling many of my travel plans. My take-home PAY while working, after taxes/401k and all the other pretax income was 42k (I had a 38% savings rate when working). I have budgeted 48k for the first five years of retirement (about 54k before taxes). I have a pension that I will collect in five years which will cover half my expenses and once SS kicks in I should have 125% of my current expenses covered as I will no longer have a mortgage by then.
Was wondering/thinking the same thing -- that perhaps the numbers were lower than expected because of lack of choice, simply not having more to spend, given the info. on how low the average numbers are for retirement savings.
Teresa, the "households" in the study had, on average, 1.7 people in them. So, it was a combination of couples and singles. A lot of them still had mortgages. Even 1 in 5 of the 75+ group paid rent. It's really hard to draw a ton of conclusions based on the data -- but the "average" retiree is certainly spending less than the $10,000/month that I made these calculations for in a prior video. I hope this helps. Thanks for the comment! 🙏
I think it depends on the person's or couple's situation. I'm 62 and still working, we live on one salary, I make less than $100K/yr and by the time taxes, 401K and benefits are taken out I'm way below that $100K mark. But my benefits and taxes are taken up front. I don't see that my living expenses will go down when I do retire, I actually see them going up because now I have to factor in healthcare and taxes. I believe we are set up financially to be OK and that costs in healthcare probably will fluctuate as max out of pocket + Medicare premiums hopefully won't be at worst case scenario (max amount of $ per year) but you never know. I plan for the worst case scenario and if it doesn't happen we will have extra cash to enjoy or put away! I also have place holder entries for things like a new car, vacations (not very expensive one but in the $3K a year range) and owning a dog (sounds stupid to some but that's part of knowing your expenses; if all or some of this doesn't happen - again ore cash. I estimate that when I do finally retire we will need $100K to $104K per year to live which is within the realm of being attainable for us. SS, a small pension, dividends from investments and withdrawal of money should make it obtainable. I have a senior couple next door that claims retiring with $1M wasn't enough, I don't know their financial situation but they've been retired since I moved in which is 21 years ago. That money 21 years ago was worth more than today ... not sure how it wasn't enough retiring back then and living in today's world but it depends on their situation.
Vinny - you never really know what's going on in someone's situation, so who knows what your neighbors have really spent, invested, etc. I hear you on the expenses going up during retirement, especially in those years between 62 & Medicare. I see it a lot, which is why some of this data surprised me. And yes -- buying a new car or replacing the roof on the house means a big chunk comes out all at once! I'm also a huge dog lover (I've owned beagles), but those suckers can get expensive as well when it comes to medical bills. Sounds like you have a great grasp on things! 🙌
@@PranaWealth I know that they're 80ish +/- . I agree since I don't know their situation I can't say where their money went. I also know people that have more than enough money and complain about how expensive it is to live so I take things people say with a grain of salt. We've lived on a budget for years. Maybe not 100% accurate but gives us a sense of output and input., although most of the money I have as "needed" is a little over estimated. I've been using a spreadsheet for years tracking our retirement funds along with the budget. I think the foremost problem financially with a lot of people is they have no clue about their financial life. They blindly buy a house, car or go into retirement without knowing anything about their monthly needs. Keep up the great information!
@@TheRealEdStoner I've owned 3 dogs at different times in my adult life. Two were relatively inexpensive to have but our current dog is slightly more expensive. As a pup she was in the vet's every month for either a UTI or ear infections. They seemed to clear up and she's 9 now but she can have stomach issues so yup having a large budget will be helpful.
Do you have any statistics on average retirement spending for couples retiring with $2 million in retirement savings? Or retirement spending vs. retirement savings in general? Thanks
Google it And the first two studies I read one I think JP Morgan was about people with one to two million in retirement assets The second one I read and I can't remember by who used spending on food as a proxy for overall spending. Which I think is ridiculous because obviously people over 70 or 80 eat less food. The most important factor is when you hear about studies is to actually look at who they studied. Not all studies are created equal. In two examples above the first study does people with smaller retirement accounts no good and the second one is just pure ridiculous for anybody.
I wish they would say 80% of pre-retirement expenses rather than income. Over half of my income went to mortgage, savings and taxes. Now my mortgage is paid off. I’m no longer saving for retirement and my taxes have dropped drastically with lower income, much of it tax free. I need less than half of my previous income now with no bills other than utilities and such.
I’m almost 57. Had to retire due to a medical condition. At the moment my medical insurance is covered by my employer til jan 31st. After that date I will have to become self insured. Thru Aca (I’m hoping to be approved for permanent disability soon). I’m debt free , my home is paid for and basically living on 1500-1800. I know this amount will go up once I start paying for medical insurance. But, it should be affordable. I have a rainy day fund that is 18 months of living expense. A 6 figure 401k fund , and a 6 figure mutual fund/ stocks account. All done with making on average 50-60k yearly income the last 15 years. People just need to learn to live below their means and not buy ever new gadget that comes out. And drive a vehicle until the wheels fall off. Exercise and eat healthy. It blows my mind when I hear /read folks needing 5k or more a month In retirement to live comfortably.
I hope you get that disability soon -- hate to hear about that. However, it sounds like you've done an amazing job of saving and keeping expenses low. Those ACA premiums aren't ever fun, but they'll at least go down once you hit Medicare at 65. The process is really simple, but it's never easy. Congrats on making things easy for yourself in retirement!
Depends on where you live in how much you need. We live below our means and we need way more than you to live. My real estate taxes alone are about $10K a year. Heating and cooling a house is about $200 or more a month. Car insurance $1800/year. House insurance $1,000 a year. Still haven't added food, gas for cars, cell phone, cable and assorted other things. I'm not retired and we need about $54000/year to live, add about another $24000/year when retired for medical and taxes. I'm not saying your wrong as I am amazed that people have much lower living expenses than we have. Hopefully you get the disability and everything works out!
Vinny G, I hear you. Sounds like your property taxes are about the same as ours. I'm not quite sure what the City of Atlanta does with our money, but they sure do want a lot of it every year. 🙄 However, I do feel like everything is 50% off when I go back to South Carolina to visit family. I'm sure there are plenty of places where people can have much, much lower expenses.
@@vinnyg2619 would you believe I’m in California. Property tax is way less. I pay 3200.00 a year. Home insurance runs about 1200. Year Car insurance 1200 year Utilities about 85-115. Month Cell about 110. Month Cook mostly at home 3 x a month eat out. Rarely buy new clothes anymore. Thx for commenting.
One give and one take: My give: People don't save for retirement when retired. That's a $26,000 reduction in the income don't need to make during retirement. My takeaway from you is that I can strive for living on 70%, not 80%. So if I do the numbers based on being an overpaid engineer at $80/hour: Before: 80 x 40 x 52 * 0.8 / 12 = $11,100 per month New numbers: (80 x 40 x 52 - 26,000) * 0.7 / 12 = $8200 per month. Quite a difference.
Great observation, James! I know that the original idea was called the "income replacement ratio", but I've always tried to get clients to focus on their actual expenses -- it does make quite a difference. Thanks for the great comment! 🙏
The healthcare numbers are shocking? I would think between medicare and medigap, you would spend what the study shows. I certainly feel better about retirement costs if these numbers are correct.
Paul -- the study only lists the average income for a 10-year cohort, so we can't parse out a final year salary. However, the average spending for the 65 - 74 group was $52,356 and the average pre-tax income for the 55 - 64 group was $94,864. That's spending that's 55% of pre-tax retirement income. The post-tax earnings number was $79,146 -- giving us a 66% income replacement ratio. That's why these numbers surprised me so much!
@@PranaWealth yeah - I always found the % of income for retirement planning as odd. Spending is the number that matters. I have never spent anywhere near my income level (never). My spending has usually been around 1/3rd of gross income and 50% of AGI.
George, I've been doing this for a long time and I've always thought it was odd too! Income and expenses aren't necessarily correlated in that way. I've always focused on the expenses number.
@@jdthompson5778 I am in a similar situation. My base spending level should be around $30k when the kids leave the nest in 10 years. Even with a family of four, $50k allows for a comfortable life.
JD -- you're absolutely right. If we have prolonged inflation, that's going to put the squeeze on a lot of retirees. The suppression of interest rates (making safe investments less appealing) pours gas on the fire.
Wife and I always lived under our income level during our working years, and find we continue to do so 8 years into retirement. Retirement income around 75k/yr and we put 15-20k back into savings yearly.....and live well on the rest. I was amazed people spend 6600/yr on healthcare. Is that per person ? How ? Medicare costs us around 300/mo, so 3600/yr and we each have a zero premium advantage plan to go with it. Might spend a few hundred a year on co-pays and over the counter products, but that comes out to about 1/3 that 6600 figure.
Ed, that's awesome that you and your wife have been able to save like you do! 🙌 As far as the healthcare expenses go, the $6,600 was a total of everything: Medicare premiums, insurance premiums, deductibles, co-pays, and other out of pocket expenses. If you click on the link to the study, it breaks everything down. The detail is kind of fascinating.
@@youngtimer964 I'm assuming the 6600 is per person, and what we spend is 3600 for wife and I together. 12,600 for a couple, of which 3600 is roughly 1/3. Sorry for the confusion. I have trouble breaking out figures to a "per person" basis having been married 50 years, and as she often says "What's mine is mine, and what's yours is mine too".....ahahhahaaaaa
Great question, Louvonia! Here's what was listed in the study: Food, Alcoholic beverages, Housing, Apparel & services, Transportation, Healthcare, Entertainment, Personal care products & services, Reading, Education, Tobacco products & smoking supplies, Miscellaneous, Cash contributions, and Personal insurance & pensions. Some of the categories had an almost weird amount of detail. For instance, in the food category, they even broke out how much people spent on "fats & oils". The detail was kind of fascinating.
@@PranaWealth No travel, or do you think it was factored in under transportation, entertainment or misc? Also, where do you thinking "gifting" for charities or family/friends would have fit in?
@jerrym -- I think that travel would have fallen under "entertainment". For charitable / family gifts, that was under "cash contributions". The travel is an interesting one since that could potentially be a big-ticket item. I'm guessing there were some big differences in that depending on which end of the spectrum you're looking at.
Anytime, @jerrym -- I really enjoy creating these videos and helping people. I wish I had the time to answer every comment like I did a few months ago!
Great question, Jay -- the numbers in the study are per "household". According to the study, there were 1.7 people per household for 65+ people. So, there were a mix of single people and couples. You may want to check out my last two videos that break the data down a bit more: th-cam.com/video/qJDxxjRSDks/w-d-xo.html th-cam.com/video/lRzuLA4pZmw/w-d-xo.html
Great question, Michael! They are actually household numbers, surprisingly. The BLS calls them "consumer units". 🤣 For the 65 - 74 group, there are 1.9 people per "consumer unit" and 1.6 for the 75+ age group. Thanks for watching and thanks for the great comment! 🙏
The consumer unit for the 45-54 cohort is 2.9, and the for the 55-64 cohort is 2.2. Does this mean that the average spending per person in the 55-64 cohort is higher than the average spending per person in the younger 45-54 cohort?
That's a super interesting point! If the 45-54 group's average spending is $74,783, that's $25,787 per person in the household. For the 55-64 group, it's $29,516 per person. I guess mom and dad splurge a little once the kids get off the payroll? 😂
@@PranaWealth This "spike" got me thinking. Maybe reducing the number of people per household cannot be converted into savings per person because you are now sharing the same housing costs (and maybe other fixed costs too -i.e. utilities) with a smaller denominator. Or maybe kid's college expenses are kicking in for this cohort. Or, as you said, dad and mom are "living la vida loca" celebrating an empty nest 🤣. I enjoy your videos. Thank you for making them!
Fantastic point, @mcangis! I'm sure it's a little bit of both -- fixed costs spread across more household members and some college costs sprinkled in for good measure. Makes total sense. Thank you so much for the kind feedback! I really do love making these videos, so it's really cool to see the channel take off an have a life of its own! Thanks for watching! 🙏
Ken -- great question. These are true spending numbers and aren't tied to income. The income and tax data was included in the study as well. I believe that taxes were not included in the spending data, but I'll need to check on that.
@@PranaWealth When retired you pay no SS. Stop funding retirement. Union dues. And if done right very little in taxes. Most people on a survey may not think about that.
Wow $6600 a year for medical expenses. Hmmm!!! I have a spreadsheet for budgets for 3 stages of retirement and I SWAGGED the numbers for medical expenses and I’m significantly higher than $6600 per year. So I’m conservatively GREAT and I could get a win in my budgets. I did put a RED NOTE on my medical expense SWAGS stating “needs more research”. And that was because I was thinking I might be too LOW! Yet this says I’m estimating too HIGH. Which I like. And which scares me because I am a skeptical conservative engineer planner type! Grin. I can’t help myself. I also showed medical expenses going up as age goes up. So budget tab 1 is 64-70 then 71-80 then 81-dead. But this BLS data says I can hold it firm? Hmmmm! One thing currently in my favor is BETTER THAN AVERAGE health. It is a blessing I work hard at. As a matter of fact it’s time to hit the gym. Thanks for a great video as always. Insightful. VERY helpful and thought provoking.
ArmedMariner -- remember, these are averages, so there could be some pretty be variability around them. That being said, I was surprised that medical expenses held steady in the data. I wondered if other factors were at play, such as assistance from a family member? Either way, it was interesting data. Also -- I am a "recovering" engineer myself! 🤣
I pay $7800 a year for me and my wife, which includes dental and vision. I still have to pay deductibles before it pays 80% and copay, but pays everything if my medical bills go over $7500.
I think that since I am saving between 10 and 15 percent of my 'pre retirement' income I will use the 10% lower amount as my starting point and then look at 80% of that number😂
I think the key is crossing the retirement threshold with ZERO debt, including the mortgage. Keep your expenses to food, utilities, insurance and taxes. No reason to continue paying on mortgages, credit cards and student loans after you're done working.
John, you are so right. I've seen people make it work carrying a mortgage into retirement, but consumer debt is a killer. No need to add interest expenses as a budget line item!
Just keep plugging away, Richard. My next video will go into how much the average American will need to save, so you may want to check it out when it's released on Thursday.
The people who are 45 in 2020 make more money than the people who were 45 30 years ago so you can’t really compare the two. You should compare the spending of someone who is over 75 now with what they spent 30 years ago. But it is a fact that most people spend much less as they age.
This is per household a.k.a. "consumer unit" in the study. So this would include spouses and dependents. For ages 65 - 74, there are 1.9 persons per household. For ages 75+ there are 1.6 people per household.
Thanks for the comment, @Bob B ! 🙏 Constant topic of discussion here. I've seen it both ways with clients in the past. I've even see people spend over 100% before (and still make it work).
Just a friendly advice, less scripting and more energy. Draw conclusions that have a 80% chance of being right. You seem unsure about most things you say
Thanks for the feedback, Nicholas. For compliance reasons, I can't use some language that would lead people to believe certain things were definitive. Gotta play by the rules. But you're right about the energy. I'm learning! 🎥
I do think that some people need the cash flow early. Maybe they haven't saved a lot, for example. I think a lot of folks are concerned about the health of the Social Security system and want to get their benefits ASAP.
@@PranaWealth The health of the system? Are you kidding? It is a Ponzi scheme. The taxes are too low and the benefits are much too high. But, it will continue to pay benefits.
@@PranaWealth Each couple needs to run the numbers. In my and wife's case because she had not enough SS credits to file on her own record and was 4 years older than me it would of took 20 years to reach payback for us if I had waited for my full retirement age 66. I modeled this with a spreadsheet I built. I would of been 86 and she in her early nineties. I have a large pension took as a dual annuity and significate retirement savings. So the higher cash flow per month was not needed. If I had needed the higher SS cash flow I would of delayed retirement.
@@PranaWealth I agree. Just saying the answer to the question before and now is quite different. Hence, people continuing to work now and delay retirement until it goes back to the original answer when this question got posted.
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
It's $35,000 for me without scrimping. I own my home and have medical insurance. I am 89 years old and have funds to cover any unplanned expenses. Good planning is essential.
Owleyes, that's awesome! Sounds like you did a lot of great planning! 🙌
Is paying off your debt on your home one of the main reasons you could retire comfortably? , put a lot away in your IRA or 401K?
@@davidfunvideos I would have paid $1700 a month for rent instead of $500 a month for property tax and and upkeep expenses. Even if I had to rent, I could have still lived comfortably. As it is, owning a mortgage free home reduced my yearly living expense from $45K (if I had to pay rent) to $35K. My pension and SS income is $45K. So I get to save $10K by owning my home plus any appreciation on the house (which has doubled in price).
@owleyes 11 -- that is amazing!
@@PranaWealth I didn't mention that my investments, IRA's, bank accounts, etc. have all been left untouched except for a couple of RMD's, which just get rolled over into my bank account. I hope that people reading of my experience would try to duplicate it. I never made more than 50K or 55K during my working years, but I do save and spend wisely.
Paid off my mortgage last year at 64 and retired this past January. Was VERY frugal with my money in the beginning months but began to realize I spend less than I've budgeted. For what I took home from job, I found I needed about 20% less of that in retirement. No debt at all and any that's incurred is paid off at month's end. For those wanting to retire but don't think they can, I suggest you create a budget the year before you retire. It helped me quite a bit to understand if my post-retirement income would be sufficient. You really can live on less without having to sacrifice much. And being retired with no debt is like a dream come true.
Scot, that's a fantastic idea! I'm thrilled that retirement is going smoothly for you, too! 🙌
Yep, we are on the same wave length. I didn't retire until my calculated retirement income was equal to 80% of my take home pay. Of course, I'm assuming that the take home pay was sufficient to cover the expenses.
Scot: thank u for this insight. I'm currently 51 and starting to plan for retirement age of 65/67. I'm working on paying off my home by age 65 sending in an extra $600/month towards principle. I have no debt since about 2009 other than my home. I'm also contributing roughly about $900 into my 401k. I have a pension from a job I had in the 90's that I should be able to pull from upon retirement and a pension that I'm currently working on in my present job. I think I should be fine as long as my home is paid off. Thanks again and enjoy ur retirement
Is this just to cover living expenses? What about travel, entertainment, hobbies, etc?
@@lareggiejones6617 Yes, I find that tracking my expenses helps to keep focused and know what I have during the month/year to spend on the less required expenses. Again, for me it's all about making sure I have no debt and any I do incur is paid off each month. Otherwise, I don't incur it. I have tried to budget enough every year in my bucket for those unexpected expenses. Somewhere along the line, I'm sure I'll get one not covered by that bucket (like a new car) but for now, I'm sticking to my budget pretty consistently.
Many years ago an "early" retired couple told me: it's expensive to have a job. I've found that amusing choice of words to be very true. This alone accounts for most of the 80% rule of thumb. But the 80% mark applies only if you insist on continuing to live in the same expensive suburb, with 2-3 cars, and not knowing how to have fun without paying some business to entertain you. I lived below means and built up investments but divorce and remarying has put me waaay below the millions we're haunted in to believing we need. We moved to a lower cost better quality of life area and have a very active and entertaining life mountain biking, hiking, backpacking, kayaking, dancing, and numerous other random activities. One car is plenty. Because we moved near to where we can do our fun that one car usually sits in garage for 1-3 days without either of us driving it. We are both much more physically fit than before our retirement. The only thing we're missing is having more people to do all of these things with us.
That is awesome! I love the outdoors, especially mountain biking. It sounds like you have a wonderful retirement! 🙌 You are absolutely correct -- it really does all come down to DECIDING what makes us fulfilled. The Latin root of the word "decide" means "to cut away". At the end of the day, our happiness and fulfillment are what we decide they are. Someone once told me, "you can have anything, but you can't have everything". I think that pursuit of "everything" is where people get crossed up.
Great comment! Thank you for watching! 🙏
All of these Prana Wealth videos are articulate, substantive, practical, and "bite sized." The information is both common sensical yet new to folks such as myself.
Thank you so much, G.P.! That's exactly what I'm trying to do! Your comment made my day! 🙏
Also consider the savings! No more funding my TSP. To busy doing the things I love so cut the TV cord. No more cable or Dish bill. Seldom eat out... I love to cook and have time to cook for myself and guest. Love your retirement. Your time being YOUR time is more precious than money
So true, David! Hardly anything good on TV anyway! 🤣 Congrats! It sounds like you're living a great retirement! 🙌
One thing for sure…no need to buy more “things” for the house and “gotta have” impulse purchases because you already have more material items than have use. Enjoy good health, the most important. Thanks for the info.
Anytime, SeaLisa! You're right -- "stuff" only makes you so happy. Spending your time and money on experiences is a much better investment. Thanks for the great comment! 🙏
I retired last September, and found that I have not need anythings I used to buy while I was working. No clothes, shoes, handbags, commuting cost, lunches, snacks, dinner out with coworkers. I am actually living on less than before, even with the cost of medical insurance. Sold and donated stuff.
I will be retiring next year before I turn 60. My budget is less than $3000 per month. No mortgage, no bills. It's not how much you have, it's how much you spend.
Glen, you are absolutely right. We all have the power to control what goes out!
Hello. Thank you for your presentation. I retired just this year. A few comments. It is better to use median values and not average. Numbers differ depending where in the Country you live. I am in CT where the cost of owning and maintaining a home is expensive considering property taxes, heating and upkeep. Retirement should not be stressful financially if you know your expenses and factor in inflation (god help us all).
I always thought most of that reduction was from not having to pay towards savings anymore. If you were contributing 10 to 15% pre retirement then that goes away once you retire
Great point, Julie. In these, I've netted out the amount they've saved, so it should be more of an apples-to-apples comparison.
This is very encouraging. We are retiring - well, the primary earner is, I’ll still take on interesting design jobs when I want- this month at 60, we own our home free and clear, very low property taxes (California bought 25 years ago) even though it’s worth a ridiculous amount of money, two cars, very low utility bills (100% offset solar PV) and essentially zero debt. I honestly don’t think we spend much more than $3k a month right now because we are not traveling or going out. That will definitely change as things start opening up more but we’ve got an investment account that our financial planner has us to get $8k/month. Healthcare is the big mystery for a while until we get that worked out but it looks like we definitely will be able to swing it and even tuck under the income limits to get a subsidy until Medicare kicks in. There are no guarantees but life is looking good and hopefully about to get even better. We’ve lived a frugal and conservative life for decades and managed to build up a substantial nest egg that we can now not worry about saving every penny and start spending.
@Tpolerex -- it sounds like you're making all the right moves, especially if you have a financial planner to help you. I like the idea of taking the fun design jobs as the come along. Good luck and congrats! 🙌
I think I will be on the left side of the smile curve with higher initial retirement expenses. Then drop down as the slow go years hit. For example I just bought a vehicle to do some traveling in. But later I don't expect as much traveling. Since I retired near FRA I have a significant amount coming in from SS and I don't need all my current dividend income. Most of it I reinvest.
While working I paid FICA 7.65 + Pension 10.9 + State retirement insurance 1 = 19.95% taxes that I no longer have in retirement. Plus about 9% into other retirement accounts. My house was only about 8 % of my gross income ,not the 20-30 percent many people pay. Paid that off before retirement so I didn't need to replace 80 % salary but I did need 92 % take home pay which was 51 % of my salary. I'm fortunate in the pension covers about 50% plus covering the insurance premiums. IRA's for for any small extra and SS as an insurance policy. Retired at 59 turn 62 next year, but will wait on SS unless some emergency comes up.
Thomas, that's awesome. It sounds like you did a great job of saving in spite of all those taxes. Having that pension is nice, too. If you don't need the cash from Social Security (and feel like you can live past your break-even age), then delaying your benefits may be a good move. 👍
Retired abroad (portugal) Have no debt own our house. Living very comfortably on $2300 per month.
That's awesome, Anthony! I know some folks who have retired to Porto! I hear that Portugal is beautiful and affordable! 🙌
I can drop my spending by more than 20% because I am currently saving over 20% of more net income each year. I am 5 years away from retirement and have started adjusting my spending upward by enjoying a few things in pre retirement life.
20% is fantastic! Great job on saving that kind of amount every year. Sounds like you're in a fantastic spot. Definitely invest in some great experiences along the way! 🙌
Spending also goes down because some of the people spent through their savings/investments
I am retired & a widow. Sold my home & bought a new one level Townhouse for cash in a nice neighborhood with people that are mostly my age. All outside maintenance is taken care of for me. Big burden lifted!! Also I am near all 3 of my children which is great!! I am fortunate to have a pension & that added to SS & a 401K makes me quite comfortable. No outstanding debt other than normal household bills….electricity, water cable, cell phone & health insurance which my former employer subsidizes. I’m living my best life & enjoying my retirement!!
0:34 $10,000/month is $120,000 a year. That's equivalent to a job that pays $170,000 a year depending on your state. The average household income today is around $69,000 per year. Most people, even those with high incomes, aren't going to spend $10,000/month in retirement.
Arie -- I've had a lot of this kind of feedback. This week's video will address that! Be sure to check back Thursday afternoon!
I hope to increase my spending in retirement (at least for the first 10 years). I am 55, and Friday was my last day at work! My annual spending has been around $40k and I am planning for an additional 20k to 30k above that. The various financial calculators I have used show that I could be spending significantly more, and I will adjust as I see what is happening with my investments and become accustomed to the new situation.
George, that's awesome! If you've done the math and you can afford it, then absolutely enjoy yourself. Congrats on your retirement! 🙌
good for you. the first several years should be more of a go-go time. then you settle into a slo-go and then later more of a no-go lifestyle 😎
20-30k above 40 on what, and for how many years in retirement? genuinely curious! congrats!
@@splinefusion6986 initially my discretionary spending will be on things like road trips in the travel trailer I built (converted a utility trailer). We have taken a few multi-week trips in the western US, and now planning a trip to Mexico and Alaska.
Most of my planning scenarios have been to the age of 80, but the models indicate my planned spending level will never exhaust my capital base.
@@splinefusion6986 Most people spend it on travel or a dream car/rv/boat, maybe living part of the year in a rental on a beach somewhere
Newbie here, but are the health care costs quoted here per person or couple? I would like to know more about health care plans on the exchanges--advice for people who have shopped and used them. Before medicare, how do you navigate healthcare including drug costs? I've learned that it's very difficult to plan for an insurance company's next year formulary (drugs they will cover). A video on gapping health care strategies until age 65 would be extremely helpful ( or other suggested links). Been to ACA site but found hard to navigate to find real practical answers, would be better to hear from actual purchasers. Great videos, Prana Wealth, thank you!
Good info. I’m finding it hard to get straight answers from most sources on pre-retirement replacement percentages. Thanks!
Seth, I've been doing this for years and I've seen replacement percentages all over the map. I think anywhere between 80% to 100% would be a good starting point for pre-retirement planning. That being said, it's probably good to trust your situation. Thanks for the great comment!
I’ve found financial planners tend to throw out high numbers as though everyone splurges.
Better to throw out high numbers and you have more money than you need rather to low ball it and run out of money. That being said, this is something nobody knows for sure so having a working knowledge of your pre-retirement spending is a good place to start. You can do it with less but it's easier with more.
My husband and I are retiring and I have figured a budget, analyzed our investments, and sought investment advice. It is still worrisome, considering inflation, taxes, and medical expenses.
Margaret, it sounds like you're doing everything that you need to do. If your advisor says that you and your husband can safely spend what you've budgeted, then you should be fine. Things will always change. All we can do is make the best decisions with the information we have today. 🙏
Another fake posting using my name.
My spending easily dropped when I retired by about 20%. But then my mom broke her hip and I spend more now than when I was working. Good news is I'm still positive in cash flow because of the stock market. Keeping fingers crossed.
Lee -- sometimes unexpected things come up. Sounds like you planned well enough to handle it. Also, good to know that your expenses dropped by 20% initially. Hope your mom has a speedy recovery! 🙏
Me too!
That's about right. I always say that you shouldn't retire until your expected retirement income is 80% of your take home pay.
Owleyes, you know your stuff!
@@PranaWealth After 21 years in retirement, I found it to be true. I'm engineer trained, so planning is in my blood.
I retired at 62 and we limit our gross income to less than $89k up here in Alaska. That way we qualifiy for subisidize health insurance under Obamacare. Our subsidized Blue Cross Gold policy cost less than $1,000 per year. The same policy would cost over $27,000 per year unsubsidized. Thus by limiting our income, we saved over $75,000 in 3 years until medicare kicks in.
If you can keep your income low, then those subsidies can help!
We will be budgeting $110k to $120k including an increase in travel, etc., starting in 4 years and a month. This is intended to be future dollars. Have cash we could use to pay off the house invested instead, earning well more than the interest expense on the mortgage loan. No other debt.
Awesome, @meesacreef ! It's a strange time -- usually, I try to get folks to pay off their mortgage before retirement. However, now that interest rates are so low, folks can just let their mortgage payments inflate away. Crazy times, huh?
Good luck getting ready! Retirement will be here before you know it!
My favorite video so far. Thank you and keep them coming.
Thank you so much, Mild Sriracha! Will do! 🙏
Spending has declined due to the pandemic, even though I am age 63. Needing only $2,600 -3,000 per month. The largest expense is medical insurance at $1220 per month.
@S CT -- I'm guessing we'll be deconstructing how the pandemic affected personal finance for decades, especially if the Great Resignation continues.
ours is 35% or 57k and thats with a mortgage which will be paid off 4 yrs into retirement in 2028 and then will be at 30kok 18%. lucky we have military retirement, 401k's ira's roth's and brokerage. these last few years we will be super savers getting ready for 2024.
John, that's amazing! Sounds like you're way, way ahead of the game! 🙌
Very interesting information. It supports the approach of budgeting your expenses in three buckets, go-go years, slow-go years and no-go years. My estimates are very close to the numbers you provide with the exception of the no-go years.
The problem with the statistics is that it lumps everyone over 75 together. I would argue the no-go years start in your 80's when you lose the ability to drive safely. It would be useful to have another decade of data above 85. DO expenses go down or not. I assume so but might be wrong.
The fact that healthcare expenses are pretty flat is very encouraging. We should be able to budget with reasonable accuracy once we see what our spending is when we retire here in the next year or so.
I think your second paragraph where you say the problem with statistics is the right answer.
Remember the famous saying
"Lies damn lies and statistics"
Read these studies carefully especially on who they studied. One study I read actually studied people based on their food outlays as they got older as a proxy of overall spending.
We are 46/47. I think income based spending calculations are useless and we are keeping a strict spending budget to track every penny. We feel this is the best way to figure out where we need to be. We even have a “theoretical budget” such as a new car every 8 years and a new geothermal system every 20 years. We really aren’t that worried about retiring early because we like what we do and also own businesses that we can live off of but it doesn’t hurt to plan for the future. My point is that actually tracking g real time expenses is necessary.
You can't take it with you so I'm gonna spend ALL my money in retirement.
Great video and good benchmark to have to help guide people on how much to save for retirement. I think national spending data in retirement can be misleading. Older retirees that are no longer working and living on a fixed income such as Social Security or pension income spend less in retirement because they have less in retirement. It's not necessarily because they need to spend less. Per the video, the average spending for age 75+ is $40k a year, that means half of retirees spend more than that and the other half spend less than that. The average Social Security check is less than $1430/month or $17,160/year. That amount won't go far in retirement if it is your only source of income. Pay yourself first and save and invest towards your retirement. If you wind up not needing it in retirement, then great, you're ahead of the game. At least you have Peace of Mind.
Catherine, you bring up a fantastic point. You're right -- these are just average spending numbers. I'm absolutely certain that there are other factors in play, so I tried to add caveats to the discussion. They may have lower expenses due to lower incomes or they could have family members paying for expenses.
One interesting thing to note, for the 75+ age group, one standard deviation was $820.21. If the mean expenses are $40,839, then 95% of those surveyed would fall between $39,197 and $42,479. Seems like a pretty tight window. I'm wondering who was surveyed and how they found the participants.
Finally -- you are absolutely right! It's all about spending less than you make and investing the rest. It's not sexy, but it works!
Not yet retired at 58. I don’t think my expenses will change much even with a paid off house if we plan on traveling, etc.. expenses would drop if we did nothing, but just live in our home
thanks for the data / nice to have perspective
Anytime, George! Thanks for the kind words and the great comments! 🙏
if you are retired, you dont have to pay FICA tax, you dont have to stash money in IRA/401k, those along will probably account for 20% saving. so if you continue your same lifestyle, your $ requirement should be 80% of pre-retirement phase
Thomas, that accounts for a lot of it, but I think it may actually drop beyond that. However, it's hard to draw conclusions from some of these numbers since they're averages. Thanks for the comment! 🙏
None of the statistics you showed surprised me a bit. Financial planners gather more clients by being advocates of the retirement “crisis” that supposedly exists. There are a great number of people who haven’t planned out their retirement adequately, but there are also many who have more than enough, despite what is often cited. Planners who abide by the same % factor for every year of retirement, are doing their clients a disservice. 65 year olds spend more than 75 year olds & 75 year olds spend more than 85 year olds. If you’ve planned out your Medicare costs properly, you should be fine.
You bring up some good points, Mark. There's definitely a slowdown in spending, however some people do see an increase in medical care costs with age. However, based upon these numbers, it looks like it's not as much as I'd expected, which I found really encouraging. I can say that -- at least in the fee-only advisor community -- there's no intentional scare tactics. I can't speak for the brokerage or insurance folks.
Our overall expenses stayed close to the same at retirement. But the fact that they are less than 50% of income keeps our net worth growing.
That's the easy way to do it! Congrats on having that kind of income / expenses spread! 🙌
My budget starts off with $5,000 per month for non-discretionary fixed and variable and $2,500 per month reserved for discretionary fun stuff assuming we get to travel ever again.
@cato -- sounds like you have a great plan laid out! Good luck retiring today!!! 🙌
Been retired for 7 years and I have no idea how much we spend. My wife (former banker) and I have a system that works for us. She's finance and I'm transportation. All I know is that I want for nothing. At that point the number does not matter.
She’s definitely embezzling from you 😂
I spend about 15,000 per month just before I retired, at age 58. I am 59 now and just making a move from NVA to Florida, selling my home and buying one in Florida for cash my expenses have dropped below 10K per month. Even though 2K goes to payments on my dream car a 2021 Porsche Boxster GTS 4.0. This will be paid off in another two years and then that money will be going towards vacations/trips. By far the savings come from (no state income tax, no mortgage)
Sweet ride! Sounds like you're seeing a pretty big reduction in living expenses! 🙌
@@PranaWealth It simple really. No mortgage (by far the biggest expense on retirees according to the data) no state income tax, no work lunches, kids out of college and both got great jobs.
I plan on paying off my house before I retire, but if I retire before 65, I've heard that health insurance could cost as much as $1500-$2000 per month for me and my wife. Won't that cost offset some of my mortgage savings? I currently pay less than half that with my current job. Am I missing something?
William, unfortunately, you're not missing anything. Those health insurance premiums aren't cheap. You'd have to price out health insurance yourself, but I wouldn't be surprised if it's in that price range. You could always go check out at healthcare.gov -- it's open enrollment right now.
@@williamdeisenroth1067 I am paying 2,100 per month for Cobra that is about to expire. Being Greek I have lined up insurance from Greece for about 4,500 Euros per year that pays 100% hospitalization and drugs but no doctor visits in the US. Not a problem for me as I go to Greece every summer and the wife and I get all our yearly tests there. Don't ask me why I got the Cobra, it was a pain in the you know what with Covid to travel and setup the insurance in Greece last summer but this past summer I got it done.
We are trying to decide between 7000-8000 per month in retirement.
Thanks for the feedback, Rhonda! I'd say that $7k-$8k is a nice lifestyle in retirement! Great job! 🙌
Same here - we've worked hard and always saved - also both have pensions and 401s
Awesome, Susan! That makes me happy that your hard work has paid off! 🙌
Zero debt, (only utilities, taxes, etc), a pension, a 401k, an IRA, mutual funds and savings to last 2.5-3 years. Husband has Medicare, delaying SS. My biggest dilemma is can I retire at 61? My biggest concern is healthcare cost prior to Medicare. We want to move and are free and clear to do so, (avoiding capital gains), in 9 months, (I am counting!)
I expect to spend a little heavy the first 5 (57-62) then slow down until time to collect ssa.
Ivan -- this is totally normal! Be sure and enjoy your retirement while you're young, healthy, and active. 🙌
In my situation, I'm spending more in retirement because I have more free time. But on the positive side, I don't need as much income because i no longer have to save for retirement or contribute to Social Security. And while your working, it can be tricky to determine how much you will spending in retirement because it's difficult to simulate how you will behaive with all your free time. It took me around 6 months in retirement to get a decent estimate on my spending.
I have been retired now for 5 years and in my late sixties. I am spending more than when I worked but most of the increase is giving. My basic expenses take only about 40% of my working income. I have no debt and own outright my home. My net worth so far has increase most years. It is a ruse that you need 80% of your income to retire on in my opinion. But you may want to be able to spend at that level for things like travel and giving to things important to you.
Stephen, congrats on a great retirement! 🙌 I think one thing that I'm hearing is that there's a vast disparity on retirement spending. Some people spend way less and others spend more. I think there's a large standard deviation around some of these averages.
If I am living in a paid off house in my retirement years then for sure I won’t need as much monthly cash. My goal is to have more money in retirement to spend than I currently have now.
Awesome @Mike S! Getting that mortgage paid off is a great way to tee that up! 🙌
Great video. What accounts for the decline in expenses after 64? If the reduction is mostly mortgage related, then what adjustment should be made when one has a paid off home?
Thank you! As far as the reduction in expenses go, it looks like it could be a combo of mortgages rolling off and a general reduction in lifestyle expenses. I think the "average" could vary greatly, depending on the individual...
Thank you!
Anytime, Cliff! Thanks for the positive feedback! 🙏
80% is plenty in my case. No nore money FICA tax, saving for retirement, and the paid off mortgage. Plus productive adult children
Ha! Glad you have some kiddos who are protective! I'm seeing more and more folks saying that 80% is probably a good number. Thanks for the comment, Jay! 🙏
This is very helpful. For all how do you know when your ready to retire and pull the plug on the work place?
I went to a financial planner, and it took awhile for me to find all my acounts, values, etc. They looked at it and before BIDEN they said, you can retire. That is the only reason I knew. But since I was healthy, I tried to keep working..but the commute sucks so I want to stop. Going into the office costs me $60/day.
@@DanTheManIOM Thanks, How much do financial planner cost average?
@@A.Musa76 you should look - there are videos, and a former boss said it's 1%, some are fee based, and the first person wanted 1.1%, really ?? That is why I am still looking...yes, even today watching and learning and setting up meetings...
I never quite understand why income replacement percentage rule is useful. This implies that people always inflate lifestyle with income. This may be the norm but lots of people I know maintain the same spending even when their income doubles.
Yes! I keep saying that the "80% replacement rule" may not work for everyone...
Great video, keep them coming! 👍
Thank you so much, Pamela! Will do! 🙏
Is following Dave Ramsey's plan a good way to have a better retirement life regardless of your age when you start? I'm 53 now started doing this when I was 50
David -- I really like Ramsey's approach to debt. I don't always agree with him when it comes to investing, but his advice is solid. I think the most important aspect is actually having a plan -- whether it's Dave Ramsey's, FIRE, or some other method -- and sticking to it.
Thanks for watching and leaving a comment! 🙏
We're in our late 40's/early 50's and I'm afraid that there's no way we can lower our spending by 20% in retirement...because we're only spending $2,000/month! The funny thing is that I could shave another couple hundred off of this without too much trouble but why bother? This doesn't include our Roth contributions which isn't really "spending" but I suppose that would be roughly a 30% drop.
Tom -- No need to spend less if you're doing such a fantastic job saving already! 🙌
Im looking at expenses of apx 3000-3500 in retirement. This includes my mortgage monthly bills, medical, food and adding a bit towards small day trips or a yearly vacation.
I will have between my pension and SS after taxes apx 3500 a month.
Depending on a lot of variables between now and then I should be ok. I have an emg fund and a small 401k.
Ill prob have to keep working at something but thats ok. Im not one to sit around doing nothing.
Rich, it sounds like you have things mapped out pretty well. If you can pay your expenses with your pension and Social Security, that really is an amazing scenario. Sounds like you'll be just fine! 🙌
I assume those retired spending numbers do not include tax. I figure at $120,000/year, income tax and property tax alone will be around $30,000-$35,000
Retiring early and in those earlier years we will spend more than what we spend now because we are allocating an additional 20K a year to travel. So our "spending" will be about 150% than pre retirement. But that's fine because we currently live on less than 1/5 our gross income. With everything paid for and not having ANY debt for about 10 years now, our household expenses are low. As we age and do less travel, then our spending will come down and be 70 to 80 % of working expenditures.
Holy smokes, Bob! Living on 1/5 of your income is incredible! Also -- congrats on being debt free! Feels good, right? 🙌 Enjoy that travel. Where's the next trip? We're scheming to get back to Italy in 2022.
@@PranaWealth looking to do a Rhine river cruise in June.. when we retire early, in about 1 to 2 years. We are going to spend summers in Ireland and Scotland. Been there and loved it. Winters in Panama and New Zealand
Awesome! The Rhine river cruise sounds amazing!
I retired as a widower at 55. Never made the big bucks but always played ourselves first. I share a residence in the states,but live on half of my income abroad. Life is so less stressful here. But no insurance, don't like to live in the what if world.
Darlene, I'm having more and more interest from clients wanting to retire abroad. It looks like the expenses can be much, much lower than here in the States, depending on where you go. Where did you retire to?
I'm in Veitnam. It's a nice place with many great people. It's not for everyone but people should explore more places to find theres.
Awesome! I've heard a lot about Costa Rica and Portugal, too. Thanks for the heads-up about Vietnam, Darlene! 🙏
Even with the house paid off, I would have to spend 500 per month for property taxes and homeowners insurance.
True! Don't forget about replacing the roof, carpet, appliances, A/C, etc... Ah, the joys of home ownership!
Is this all “per person”? Do the numbers double for a married couple? Sure wish you’d clarify.
Like many I plan to have the 1, have the house paid off and 2 downsize as we just won't need the space required for raising a family. Lower taxes and many expences associated with a larger house will easily be reduced. Will we need two cars? We will still be able to take trips but now at more oportune times to take advantage of deals. I am thinking 70% or less.
It really is all about making choices. It sounds like you have a great plan, Thomas! 🙌
I retired at 59 1/2 and my husband will be retiring at the same age next year. My husband is a retired military so we only pay $300 premium a year, and maybe spend less than a thousand on years where we had surgeries. House is paid off, 2015 & 2017 cars both paid off. Our yearly expenses incl property tax, home insurance, car insurance, food $1000 a month , etc. amounts to about $25 grand. Yes! I maintain an excel file for budgeting, tracking assets, investments etc. I believe by the end of the year, we would have about $75 grand in savings. Stock piling cash for next 4 months until my hubby retires in April. Hoping that we wouldn’t have to touch portfolio for at least a year or more. Wondering if we are thinking this right, as I hate leaving big amount in savings that are not earning nothing. Any recommendation on High yield Savings accounts? 😊
I forgot to mention. My husband receives about $1500 in military retirement a month ($18 grand a year) and still works full time, and if we take SSS at 62, our estimated SSS is $32 grand. So Annual income from both of about $50 grand is more than enough as we are not big spenders, which means we might not have to touch our portfolio. Still contemplating of when we should take Social Security… I believe we should be OK in retirement.
@Toria -- congrats on paying off the house! 🙌 It sounds like you've got a great plan in place. If you're worried about a high-level reality check, I created a downloadable spreadsheet where you can go over some of these numbers and check for yourself. Here's a link:
pranawealth.vipmembervault.com/products/courses/view/17
With your husband's service, the pension and healthcare benefits will be a huge help in retirement. We are thankful for his service! 🇺🇸🙏
Retired in Jan 2020 at 54...My spending was offset by the fact that the pandemic prevented me for fulfilling many of my travel plans. My take-home PAY while working, after taxes/401k and all the other pretax income was 42k (I had a 38% savings rate when working). I have budgeted 48k for the first five years of retirement (about 54k before taxes). I have a pension that I will collect in five years which will cover half my expenses and once SS kicks in I should have 125% of my current expenses covered as I will no longer have a mortgage by then.
Wow! A 38% savings rate is incredible! Way to go, Jesus! Sounds like you're going to have a great retirement! 🙌
There is a difference between wanting to spend less and needing to spend less because of financial situation. And the study doesn't give reasons.
Fantastic point. I do believe that some people end up spending less because they have no choice. Unfortunately, the study just gives us the numbers...
Was wondering/thinking the same thing -- that perhaps the numbers were lower than expected because of lack of choice, simply not having more to spend, given the info. on how low the average numbers are for retirement savings.
Are these numbers for a couple or single, if single, what the heck are they spending the money on assuming no mortgage or car payment at that age.
Teresa, the "households" in the study had, on average, 1.7 people in them. So, it was a combination of couples and singles. A lot of them still had mortgages. Even 1 in 5 of the 75+ group paid rent. It's really hard to draw a ton of conclusions based on the data -- but the "average" retiree is certainly spending less than the $10,000/month that I made these calculations for in a prior video. I hope this helps. Thanks for the comment! 🙏
I think it depends on the person's or couple's situation. I'm 62 and still working, we live on one salary, I make less than $100K/yr and by the time taxes, 401K and benefits are taken out I'm way below that $100K mark. But my benefits and taxes are taken up front. I don't see that my living expenses will go down when I do retire, I actually see them going up because now I have to factor in healthcare and taxes. I believe we are set up financially to be OK and that costs in healthcare probably will fluctuate as max out of pocket + Medicare premiums hopefully won't be at worst case scenario (max amount of $ per year) but you never know. I plan for the worst case scenario and if it doesn't happen we will have extra cash to enjoy or put away! I also have place holder entries for things like a new car, vacations (not very expensive one but in the $3K a year range) and owning a dog (sounds stupid to some but that's part of knowing your expenses; if all or some of this doesn't happen - again ore cash. I estimate that when I do finally retire we will need $100K to $104K per year to live which is within the realm of being attainable for us. SS, a small pension, dividends from investments and withdrawal of money should make it obtainable.
I have a senior couple next door that claims retiring with $1M wasn't enough, I don't know their financial situation but they've been retired since I moved in which is 21 years ago. That money 21 years ago was worth more than today ... not sure how it wasn't enough retiring back then and living in today's world but it depends on their situation.
Vinny - you never really know what's going on in someone's situation, so who knows what your neighbors have really spent, invested, etc. I hear you on the expenses going up during retirement, especially in those years between 62 & Medicare. I see it a lot, which is why some of this data surprised me.
And yes -- buying a new car or replacing the roof on the house means a big chunk comes out all at once! I'm also a huge dog lover (I've owned beagles), but those suckers can get expensive as well when it comes to medical bills.
Sounds like you have a great grasp on things! 🙌
@@PranaWealth I know that they're 80ish +/- . I agree since I don't know their situation I can't say where their money went. I also know people that have more than enough money and complain about how expensive it is to live so I take things people say with a grain of salt.
We've lived on a budget for years. Maybe not 100% accurate but gives us a sense of output and input., although most of the money I have as "needed" is a little over estimated. I've been using a spreadsheet for years tracking our retirement funds along with the budget. I think the foremost problem financially with a lot of people is they have no clue about their financial life. They blindly buy a house, car or go into retirement without knowing anything about their monthly needs.
Keep up the great information!
Ha! You’re right! It’s their responsibility to make sure they are staying on budget.
Thanks for the comments and the kind words! 🙏
I always tell people about owning a dogs to add up what they think the expenses are going to be and then multiply by three.
@@TheRealEdStoner I've owned 3 dogs at different times in my adult life. Two were relatively inexpensive to have but our current dog is slightly more expensive. As a pup she was in the vet's every month for either a UTI or ear infections. They seemed to clear up and she's 9 now but she can have stomach issues so yup having a large budget will be helpful.
Do you have any statistics on average retirement spending for couples retiring with $2 million in retirement savings? Or retirement spending vs. retirement savings in general? Thanks
Google it
And the first two studies I read one I think JP Morgan was about people with one to two million in retirement assets
The second one I read and I can't remember by who used spending on food as a proxy for overall spending. Which I think is ridiculous because obviously people over 70 or 80 eat less food.
The most important factor is when you hear about studies is to actually look at who they studied. Not all studies are created equal. In two examples above the first study does people with smaller retirement accounts no good and the second one is just pure ridiculous for anybody.
I wish they would say 80% of pre-retirement expenses rather than income. Over half of my income went to mortgage, savings and taxes. Now my mortgage is paid off. I’m no longer saving for retirement and my taxes have dropped drastically with lower income, much of it tax free. I need less than half of my previous income now with no bills other than utilities and such.
I’m almost 57. Had to retire due to a medical condition. At the moment my medical insurance is covered by my employer til jan 31st. After that date I will have to become self insured. Thru Aca (I’m hoping to be approved for permanent disability soon). I’m debt free , my home is paid for and basically living on 1500-1800. I know this amount will go up once I start paying for medical insurance. But, it should be affordable. I have a rainy day fund that is 18 months of living expense. A 6 figure 401k fund , and a 6 figure mutual fund/ stocks account. All done with making on average 50-60k yearly income the last 15 years. People just need to learn to live below their means and not buy ever new gadget that comes out. And drive a vehicle until the wheels fall off. Exercise and eat healthy. It blows my mind when I hear /read folks needing 5k or more a month In retirement to live comfortably.
I hope you get that disability soon -- hate to hear about that. However, it sounds like you've done an amazing job of saving and keeping expenses low. Those ACA premiums aren't ever fun, but they'll at least go down once you hit Medicare at 65. The process is really simple, but it's never easy. Congrats on making things easy for yourself in retirement!
Depends on where you live in how much you need. We live below our means and we need way more than you to live.
My real estate taxes alone are about $10K a year. Heating and cooling a house is about $200 or more a month. Car insurance $1800/year. House insurance $1,000 a year. Still haven't added food, gas for cars, cell phone, cable and assorted other things. I'm not retired and we need about $54000/year to live, add about another $24000/year when retired for medical and taxes.
I'm not saying your wrong as I am amazed that people have much lower living expenses than we have. Hopefully you get the disability and everything works out!
Vinny G, I hear you. Sounds like your property taxes are about the same as ours. I'm not quite sure what the City of Atlanta does with our money, but they sure do want a lot of it every year. 🙄 However, I do feel like everything is 50% off when I go back to South Carolina to visit family. I'm sure there are plenty of places where people can have much, much lower expenses.
@@vinnyg2619 would you believe I’m in California. Property tax is way less. I pay 3200.00 a year. Home insurance runs about 1200. Year Car insurance 1200 year Utilities about 85-115. Month Cell about 110. Month Cook mostly at home 3 x a month eat out. Rarely buy new clothes anymore. Thx for commenting.
@@nubicep65 Wow, I thought California was just below NJ for taxes! LOL!!!
One give and one take: My give: People don't save for retirement when retired. That's a $26,000 reduction in the income don't need to make during retirement.
My takeaway from you is that I can strive for living on 70%, not 80%. So if I do the numbers based on being an overpaid engineer at $80/hour:
Before: 80 x 40 x 52 * 0.8 / 12 = $11,100 per month
New numbers: (80 x 40 x 52 - 26,000) * 0.7 / 12 = $8200 per month. Quite a difference.
Great observation, James! I know that the original idea was called the "income replacement ratio", but I've always tried to get clients to focus on their actual expenses -- it does make quite a difference. Thanks for the great comment! 🙏
The healthcare numbers are shocking? I would think between medicare and medigap, you would spend what the study shows. I certainly feel better about retirement costs if these numbers are correct.
Well, if you expect them to be high, then you may not be shocked at all! 🤣 I was a little surprised that the numbers weren't higher than they were.
Averages alway skew upwards. Ideally we should have medians
I notice you use spending as opposed to percentage of income. How does final year salary compare to percent spent?
Paul -- the study only lists the average income for a 10-year cohort, so we can't parse out a final year salary. However, the average spending for the 65 - 74 group was $52,356 and the average pre-tax income for the 55 - 64 group was $94,864. That's spending that's 55% of pre-tax retirement income. The post-tax earnings number was $79,146 -- giving us a 66% income replacement ratio. That's why these numbers surprised me so much!
@@PranaWealth yeah - I always found the % of income for retirement planning as odd. Spending is the number that matters. I have never spent anywhere near my income level (never). My spending has usually been around 1/3rd of gross income and 50% of AGI.
George, I've been doing this for a long time and I've always thought it was odd too! Income and expenses aren't necessarily correlated in that way. I've always focused on the expenses number.
Is this per person or a couple. If this is per person it seems awfully high for the average retiree.
Chris, I was under the impression that this may be per household, but I'm not completely sure on that. Let me go back and review the data...
JD -- this is awesome! This whole game is pretty simple: spend more than you make and invest the rest. It's not sexy or simple, but man it works!
@@jdthompson5778 I am in a similar situation. My base spending level should be around $30k when the kids leave the nest in 10 years. Even with a family of four, $50k allows for a comfortable life.
JD -- you're absolutely right. If we have prolonged inflation, that's going to put the squeeze on a lot of retirees. The suppression of interest rates (making safe investments less appealing) pours gas on the fire.
I M 61AND CONTRIBUTE .30 PERCENT A YEAR SO YES I CAN LIVE ON 80 PRECENT WHEN I RETIRE AT 65
Dang, Thomas! 30% is amazing!!! 🙌
Wife and I always lived under our income level during our working years, and find we continue to do so 8 years into retirement. Retirement income around 75k/yr and we put 15-20k back into savings yearly.....and live well on the rest.
I was amazed people spend 6600/yr on healthcare. Is that per person ? How ? Medicare costs us around 300/mo, so 3600/yr and we each have a zero premium advantage plan to go with it. Might spend a few hundred a year on co-pays and over the counter products, but that comes out to about 1/3 that 6600 figure.
Ed, that's awesome that you and your wife have been able to save like you do! 🙌 As far as the healthcare expenses go, the $6,600 was a total of everything: Medicare premiums, insurance premiums, deductibles, co-pays, and other out of pocket expenses. If you click on the link to the study, it breaks everything down. The detail is kind of fascinating.
How can it be 1/3? 3600 is over half of 6600
@@youngtimer964 I'm assuming the 6600 is per person, and what we spend is 3600 for wife and I together. 12,600 for a couple, of which 3600 is roughly 1/3. Sorry for the confusion. I have trouble breaking out figures to a "per person" basis having been married 50 years, and as she often says "What's mine is mine, and what's yours is mine too".....ahahhahaaaaa
What's included in this spending?
Great question, Louvonia! Here's what was listed in the study:
Food,
Alcoholic beverages,
Housing,
Apparel & services,
Transportation,
Healthcare,
Entertainment,
Personal care products & services,
Reading,
Education,
Tobacco products & smoking supplies,
Miscellaneous,
Cash contributions, and
Personal insurance & pensions.
Some of the categories had an almost weird amount of detail. For instance, in the food category, they even broke out how much people spent on "fats & oils". The detail was kind of fascinating.
@@PranaWealth No travel, or do you think it was factored in under transportation, entertainment or misc? Also, where do you thinking "gifting" for charities or family/friends would have fit in?
@jerrym -- I think that travel would have fallen under "entertainment". For charitable / family gifts, that was under "cash contributions". The travel is an interesting one since that could potentially be a big-ticket item. I'm guessing there were some big differences in that depending on which end of the spectrum you're looking at.
@@PranaWealth Thank you, Patrick. New to your channel. Appreciate your helpful info./content.
Anytime, @jerrym -- I really enjoy creating these videos and helping people. I wish I had the time to answer every comment like I did a few months ago!
Are these numbers for couples?
Great question, Jay -- the numbers in the study are per "household". According to the study, there were 1.7 people per household for 65+ people. So, there were a mix of single people and couples. You may want to check out my last two videos that break the data down a bit more:
th-cam.com/video/qJDxxjRSDks/w-d-xo.html
th-cam.com/video/lRzuLA4pZmw/w-d-xo.html
Are these figures per individual or per household?
Great question, Michael! They are actually household numbers, surprisingly. The BLS calls them "consumer units". 🤣 For the 65 - 74 group, there are 1.9 people per "consumer unit" and 1.6 for the 75+ age group.
Thanks for watching and thanks for the great comment! 🙏
The consumer unit for the 45-54 cohort is 2.9, and the for the 55-64 cohort is 2.2. Does this mean that the average spending per person in the 55-64 cohort is higher than the average spending per person in the younger 45-54 cohort?
That's a super interesting point! If the 45-54 group's average spending is $74,783, that's $25,787 per person in the household. For the 55-64 group, it's $29,516 per person. I guess mom and dad splurge a little once the kids get off the payroll? 😂
@@PranaWealth This "spike" got me thinking. Maybe reducing the number of people per household cannot be converted into savings per person because you are now sharing the same housing costs (and maybe other fixed costs too -i.e. utilities) with a smaller denominator. Or maybe kid's college expenses are kicking in for this cohort. Or, as you said, dad and mom are "living la vida loca" celebrating an empty nest 🤣. I enjoy your videos. Thank you for making them!
Fantastic point, @mcangis! I'm sure it's a little bit of both -- fixed costs spread across more household members and some college costs sprinkled in for good measure. Makes total sense.
Thank you so much for the kind feedback! I really do love making these videos, so it's really cool to see the channel take off an have a life of its own! Thanks for watching! 🙏
Was the spending is of net or gross income? 20% would be just payroll deductions.
Ken -- great question. These are true spending numbers and aren't tied to income. The income and tax data was included in the study as well. I believe that taxes were not included in the spending data, but I'll need to check on that.
@@PranaWealth When retired you pay no SS. Stop funding retirement. Union dues. And if done right very little in taxes. Most people on a survey may not think about that.
Ken -- that's a great point! I'm going to go back and see if "saving" was included in "spending" in the study...
Wow $6600 a year for medical expenses. Hmmm!!! I have a spreadsheet for budgets for 3 stages of retirement and I SWAGGED the numbers for medical expenses and I’m significantly higher than $6600 per year. So I’m conservatively GREAT and I could get a win in my budgets. I did put a RED NOTE on my medical expense SWAGS stating “needs more research”. And that was because I was thinking I might be too LOW! Yet this says I’m estimating too HIGH. Which I like. And which scares me because I am a skeptical conservative engineer planner type! Grin. I can’t help myself. I also showed medical expenses going up as age goes up. So budget tab 1 is 64-70 then 71-80 then 81-dead. But this BLS data says I can hold it firm? Hmmmm! One thing currently in my favor is BETTER THAN AVERAGE health. It is a blessing I work hard at. As a matter of fact it’s time to hit the gym. Thanks for a great video as always. Insightful. VERY helpful and thought provoking.
ArmedMariner -- remember, these are averages, so there could be some pretty be variability around them. That being said, I was surprised that medical expenses held steady in the data. I wondered if other factors were at play, such as assistance from a family member? Either way, it was interesting data. Also -- I am a "recovering" engineer myself! 🤣
I pay $7800 a year for me and my wife, which includes dental and vision. I still have to pay deductibles before it pays 80% and copay, but pays everything if my medical bills go over $7500.
@@howellwong11 Thanks a LOT for that data. Amazing how data makes me sleep better.
Owleyes -- That actually sounds like a pretty good deal if you get vision and dental.
If those are averages , I'll be poor. Now I'm getting nervous I only have 6 paychecks left. Of course I paid my debt off.
I think that since I am saving between 10 and 15 percent of my 'pre retirement' income I will use the 10% lower amount as my starting point and then look at 80% of that number😂
I think the key is crossing the retirement threshold with ZERO debt, including the mortgage. Keep your expenses to food, utilities, insurance and taxes. No reason to continue paying on mortgages, credit cards and student loans after you're done working.
John, you are so right. I've seen people make it work carrying a mortgage into retirement, but consumer debt is a killer. No need to add interest expenses as a budget line item!
Guess I'll keep working😞
Just keep plugging away, Richard. My next video will go into how much the average American will need to save, so you may want to check it out when it's released on Thursday.
The people who are 45 in 2020 make more money than the people who were 45 30 years ago so you can’t really compare the two. You should compare the spending of someone who is over 75 now with what they spent 30 years ago. But it is a fact that most people spend much less as they age.
So Pleade do a video using 80% of $60K? Your example of $10K = $120K is 200% of our Ave Not 80%?
Is this per person
This is per household a.k.a. "consumer unit" in the study. So this would include spouses and dependents. For ages 65 - 74, there are 1.9 persons per household. For ages 75+ there are 1.6 people per household.
@@PranaWealth thnx
Anytime!
Is this retirement spending? Most 55 to 64s are probably still working.
@Super Duper -- you're correct. This is retirement spending. I just focused on the age 65+ groups in this study.
Most people do not spend 80% of their income in retirement. More like 50-70%.
Thanks for the comment, @Bob B ! 🙏 Constant topic of discussion here. I've seen it both ways with clients in the past. I've even see people spend over 100% before (and still make it work).
Just a friendly advice, less scripting and more energy. Draw conclusions that have a 80% chance of being right. You seem unsure about most things you say
Thanks for the feedback, Nicholas. For compliance reasons, I can't use some language that would lead people to believe certain things were definitive. Gotta play by the rules. But you're right about the energy. I'm learning! 🎥
I spend less than $20,000, and I am still working.
I didn't expect that the retired boomers can spend so much money.
John -- sounds like you are doing a fantastic job of keeping those expenses down!
Your Federal welfare check, SS, will help. My check will be $4,100 at 70.
Bill -- delaying can make a big difference if you can wait!
@@PranaWealth For most people, why can't they wait?
I do think that some people need the cash flow early. Maybe they haven't saved a lot, for example. I think a lot of folks are concerned about the health of the Social Security system and want to get their benefits ASAP.
@@PranaWealth The health of the system? Are you kidding? It is a Ponzi scheme. The taxes are too low and the benefits are much too high. But, it will continue to pay benefits.
@@PranaWealth Each couple needs to run the numbers. In my and wife's case because she had not enough SS credits to file on her own record and was 4 years older than me it would of took 20 years to reach payback for us if I had waited for my full retirement age 66. I modeled this with a spreadsheet I built. I would of been 86 and she in her early nineties. I have a large pension took as a dual annuity and significate retirement savings. So the higher cash flow per month was not needed. If I had needed the higher SS cash flow I would of delayed retirement.
The answer when this was asked 7 months ago is different now. The answer now is -- Nothing. All money wiped out by stock market. 🤣🤣
Or is it? What we've seen so far in 2022 is well within the statistical norms of market returns.
@@PranaWealth I agree. Just saying the answer to the question before and now is quite different. Hence, people continuing to work now and delay retirement until it goes back to the original answer when this question got posted.
I'm spending a lot more in retirement than when I was working. This is misleading.
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Stay off the Medicare merry-go-round.
What merry go round? Explain.
Sunny D -- curious about what you're referring to...
Still waiting to hear what you mean here. Strange comment.