February CK Newsletter-Retirement Spending and What it Looks like on Average!

Retirement Spending and

What it Looks like on Average!

According to the Bureau of Labor Statistics 2016 data, which is the latest available, “older households”—defined as those run by someone 65 and older—spend an average of $45,756 a year, or roughly $3,800 a month. That’s about $1,000 less than the monthly average spent by all U.S. households combined.

Spending, in retirement varies greatly and the statistics we are showing are just averages, but we think they may be useful to you. Actual spending in retirement will vary based on many variables, such as the area of the country in which you live, property taxes you pay, housing costs (both the size of the home and the location affect the cost), food costs, whether you live in cold Northern climates or hot summer areas. The study does point to the fact that retirees’ spending habits tend to differ from the working population. Understanding that may help you not only to plan better for retirement, but also to spend better at that time.

The average total Social Security benefit received by a retired person was $1,360 per month in 2016, for a total annual payment of $16,320. Social Security covers roughly 36% of retiree spending. Approximately 29% of 65-and-older households continue to work into retirement. 37% receive earnings from a pension plan (401k, 403b or defined benefit plan). The rest is made up of either savings or gifts from relatives or children.

Spending by category

Some of the spending decreases are predictable, such as food costs decreasing as people retire. They eat out less and have fewer mouths to feed. With no work-related costs to worry about, you may have expected retirement expenses to be even lower than the BLS data indicates. In some categories, spending does indeed decrease. In others areas, like health care, life becomes more expensive as you age.

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

• Housing: $1,322
You may be close to paying off your mortgage, but housing is the biggest spending category for all age groups—retirees included. Some costs never go away, even when a home loan is fully paid. This monthly expenditure includes property taxes, insurance, utilities, repairs and maintenance and household supplies.
• Transportation: $567
People older than 65 do catch a break on transportation costs. The $6,814 annual average outlay, which includes the costs of gas, insurance and maintenance and repairs, is about one-third less than the nearly $9,000 average households of other ages shell out each year.
• Health care: $499

The good news is that 99% of older households have some type of health insurance coverage. Due to Medicare premium payments, insurance premiums runs just over $4,000 a year on average for the 65-plus household. Interestingly, there is about a 10-year window where health care costs rise, and then around age 75 health care costs start decreasing by about $30 per year. While a financial assist from an employer may no longer exist, at least there’s Medicare to help cover some costs.

We suspect (anecdotally) that the first few years of retirement are spent dealing with medical issues that were postponed prior to retirement which creates a jump. We do have statistics showing that older persons averaged more office visits with doctors than younger persons in 2016.
• Food: $483
This is another major budget category for all ages. Yet retirees spend nearly 20% less than the average household does on food. There are several factors here: appetites wane as you age, more home cooking, smaller households, and of course the classic retiree early-bird specials all play a role.
• Personal insurance/pensions: $237
In 2016, 29% of those age 65 and older continued to work for a living. As a result, those in the household who are still employed (bringing in earned income) are required to pay their fair share of salary to Social Security and perhaps even the company pension (think 401k/ 403b). Combined, they account for the bulk of this average monthly expense.
• Cash contributions: $202
Altruism among the elderly is greater than among other households, at least as measured by charitable cash payments. Retirees report dedicating $2,429 of their annual income to “cash contributions” (which includes charitable donations), compared with $2,081 by the average household.
• Entertainment: $197

Older households seem to spend as much on entertainment as 25-34 year olds, but not as much as the average household. Our guess is that smaller households reduce entertainment expenses, and that entertainment expenses decrease with age. A 65-75 year old would travel more than the 76-100 age group. Let’s face it, few nonagenarians travel for vacation.

This statistic matches with the findings of the U.S. Census Bureau’s American Community Survey that 35% of people age 65-74 reported some type of disability, for example difficulty in hearing, vision, cognition, ambulation, self-care, or independent living. Some disabilities such as hearing loss (15%) are easier to manage than others such as ambulatory difficulty (needing a cane, crutch, walker or wheelchair)(23%).  The disabled percentage jumps to 44% by age 75 which is more than double the 19.7% for the age group 44 through 64.
• Caregiving:

The need for caregiving increases with age. In January-June 2017, the percentage of older adults age 85 and over needing help with personal care (22%) was more than twice the percentage for adults ages 75–84 (9%) and more than six times the percentage for adults ages 65–74 (3%).

Older adults not only need care, but often also provide care to younger family members. For example, approximately 1 million grandparents age 60 and over were responsible for the basic needs of one or more grandchildren under age 18 living with them in 2016. Of these caregivers, 58% were grandmothers and 42% were grandfathers.

In addition, in 2015, among the 3.6 million people with Intellectual and Developmental Disabilities (I/DD) living with a family caregiver, 24% had caregivers who were age 60 and over (872,042). The percentage of people with I/DD living with older caregivers ranged from 11% in Alaska to 25% in Florida.
How this affects retirement planning

First and foremost, it is important to note that less than 10% of those 65 and older were listed as living below the poverty level. Second, it is important to realize that downsizing either just before you retire or sometime during retirement is a natural condition of retirement. Downsizing reduces housing, food and entertainment expenses. Third, it is important to realize that the first few years, you will likely continue to have rising medical expenses till sometime around age 75. Fourth, although medical expenses may decrease, the amount of doctor visits may increase sometime after age 74. Also, that a good deal of older households feel sufficiently comfortable to increase their charitable giving. People don’t give if they are feeling poor.

Hopefully, the above information may assist you with having a more realistic view of your older years.
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