It’s an age-old question that keeps workers up at night: How much should you really save for retirement?
But official data may have found the answer once and for all. According to the Bureau of Labor Statistics (BLS), the average citizen age 65 and older earns a pre-tax income of $55,335 — and spends about $52,141 a year.
This means that their expenses amount to $4,345 per month – and more than three-quarters are eaten up by four key areas: housing, transport, health care and food.
The numbers reveal how ill-prepared most Americans are for their twilight years.
A recent study by Northwestern Mutual found that the average worker has just $89,300 saved for retirement – a figure that would barely cover their expenses for more than a year.
According to the Bureau of Labor Statistics (BLS), the average retiree earns a pre-tax income of $55,335 — and spends about $52,141 a year. But 75% of that spending goes to four key areas
Even more disturbing research from the National Institute on Retirement Security (NIRS) shows that a standard Gen X household — those between the ages of 43 and 58 — only have $40,000 in their kitty.
This despite the fact that some are less than two years away from being able to withdraw from their 401(K).
Analysis of the spending habits of Americans over 65 reveals that their biggest expense is housing.
Not all individuals in this cohort are necessarily retired. However, the vast majority will be granted the average retirement age in the United States is 62, according to the 2023 Retirement Confidence Survey.
BLS data shows this cohort pays $18,872 in housing costs per year — either through rent or mortgage payments. This equates to $1,572 per month, or 36% of their average spending.
The second biggest expense is transportation, which costs older households $7,160 a year, or 13.7% of their spending. This sum covers the cost of owning, maintaining and insuring the vehicle.
On public transit, Americans 65 and older spend just $279 a year.
The third largest volume of spending came in the form of “health care” on which those over 65 spend about $7,030 a year. The term covers funds spent on insurance, medical services, drugs and supplies.
Meanwhile, some $6,490 is set aside for food expenses, which represents 12% of a retiree’s expenses.
Like the rest of the country, older Americans are struggling under the weight of searing inflation – which soared to 9.1% last summer but has since cooled to 3%.
In an effort to stem the crisis, the Federal Reserve also raised interest rates, causing mortgage payments and credit card payments to spiral. This week, Fed officials voted to raise rates again, taking them to a 22-year high.
Audra Edgington, 53, and her husband Ron, 58, say they have had to budget more carefully since retiring in 2021
A recent study by Northwestern Mutual found that the average worker has just $89,300 saved for retirement – a figure that would barely cover their expenses for more than a year.
As a result, budgets have never been tighter, especially for people on fixed incomes.
It is therefore not surprising that millions of retirees are returning to the labor market to meet rising costs.
A study by payroll services company Paychex found that one in six American retirees were considering returning to work. Some 55% of those who had already returned said it was due to financial pressures.
Indeed, when Audra and Ron Edgington decided to retire in August 2021, they could not have foreseen the economic turmoil that was about to unfold.
Then 51, Audra had little saved for retirement from her own career as a freelance photographer – However, the couple expected to rely on Ron’s generous military plan.
The benefit – which he was able to claim after turning 55 – amounts to $79,318 a year after taxes.
The couple, originally from Texas, have $6,609 a month to spend. Of this amount, $2,041 is spent on their housing costs – $1,911 on their mortgage and an additional $130 on home insurance.
Their car costs $909 more per month – covering their loan payments, insurance and gas. Meanwhile, they spend $750 a month on food – that’s $9,000 a month.
And they then spend $703.92 a year on health care — a figure that Audra says is unusually low due to her husband’s veteran benefits.
She told DailyMail.com: ‘We retired before inflation hit and it was a real shock.
“We need to budget much more carefully now. Before we retired, every day felt like Christmas, we were always spending and always had Amazon packages coming to the door. But now we really have to live within our means.
Typically, a worker can begin withdrawing from their 401(K) plan at age 59½. Withdrawing funds before this age may result in a penalty – although this depends on the circumstances.
A 401(K) is a private pension that a person and their employer contribute to. This is usually responsible for the bulk of a retiree’s income.
In addition to this, they can also claim social security between the ages of 62 and 70. However, the longer they delay this decision, the more they benefit from it.
This is because the Internal Revenue Service (IRS) gives retirees additional “deferred retirement credits” for every money they delay filing.
A big part of that decision also depends on someone’s “full retirement age”, which is set by the year they were born.
For example, seniors born between 1959 have a “full retirement age” of 66 and 10 months. This is the age at which they are entitled to their maximum social security benefits.
They can request payments up front, but this will trigger a deduction. A person born in 1960 who starts receiving the benefit will only be eligible for 70% of it. This increases to 75% when they reach 63, 80% when they reach 64 and 86.67% when they reach 65. They will only receive full benefits at age 67.
But for every year they delay taking the profit, they add to its value. For example, if a person born in 1960 waits until age 70 to apply for Social Security, they will receive 124% of the standard payment. In 2023, the average benefit is $15,189 per year.
