The Average Monthly Retirement Budget Is $4,345 — Can Boomers Live Off That?

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The baby boomer generation is either approaching retirement age or already in it, and though retirement plans will vary from person to person, worrying about the affordability of life after work in the U.S. seems universal. When creating a retirement budget, baby boomers have to contend with questionable Social Security benefits and a volatile financial climate, both economically and politically.

GOBankingRates has conducted several studies to best determine the cost of living estimates for different cities, states and age ranges. The bottom line is that your 401(k) plans and retirement savings have to last you the rest of your life, so knowing how much you’re likely to pay for things like health insurance, mortgages or even groceries gives you better budgeting abilities. Here are some key takeaways: 

• The Bureau of Labor Statistics found the average expenses of someone 65 and older to be approximately $4,345 per month. 
• It should be noted that younger retirees averaged higher expenses than older retirees. Monthly expenses of $4,870 per month were estimated for people between the ages of 65 and 74 and $3,813 for those 75 and older.
• One GOBankingRates study that evaluated the retirement affordability of each state showed that nearly half of America showed an average cost of living estimate to be under $4,000 a month. 
• The same research showed that the state with the lowest estimated monthly cost of living was West Virginia with $2,804, and the most expensive state was Hawaii with a monthly estimated cost of $8,348. 

Breaking Down Your Retirement Budget

Your overall retirement budget is essentially one big emergency savings to help you live comfortably in your golden years. Another study by GOBankingRates found what you would need for your monthly and annual budget in some of America’s major cities. Let’s break it down.

Housing

For most retirees, housing costs remain the largest expense. Whether paying off a mortgage or renting, housing can easily consume a large chunk of the budget. For example, if you live in a city like New York, housing costs about $32,539 a year, but if you live in Phoenix the estimate is closer to $17,205.30 annually.

Healthcare

Healthcare becomes a major financial concern, especially as medical needs increase. Expenses such as Medicare premiums, prescription drugs, and long-term care insurance can add up. For retirees, healthcare costs can average around $5,862 a year in cities like Jacksonville, Florida, or $7,862 in Lincoln, Nebraska.

Groceries 

Monthly food expenses for retirees vary based on lifestyle and diet, but there is no way around the fact you have to factor food into your budget. You can expect to pay $6,507 a year on grocery bills in Washington, D.C., which works out to about $542 a month. Where if you live in Austin, Texas, you’ll pay closer to $5,515 a year, or $460 a month.

Transportation

Buying and maintaining a vehicle or relying on public transportation can eat into your retirement budget immensely, especially if you plan on retiring in a bigger city. If you want to enjoy a sunnier climate in San Diego, you can pay about $10,702 a year, or $892 a month on transportation. However, if you retire in Nashville, Tennessee, the estimate drops to about $6,947 annually or $579 monthly.

Utilities

The cost of heating or cooling your home can also vary based on the size of your retirement home and its location. For example, a place like Portland, Oregon, will run you about $3,635 in utilities a year, but a city like Boston could cost you $5,313 to keep the lights on. 

Miscellaneous Expenses

With more time for hobbies, travel and entertainment, retirees often allocate a percentage of their nest egg to actually enjoying their retirement. Whether it’s clothes shopping, catching a show or something unexpected, you still need to account for where you are spending. More expensive cities like San Francisco cost you about $2,477 a year, or about $207 a month in miscellaneous expenses.

Comparing Pre-Retirement and Retirement Spending

Many baby boomers are accustomed to higher monthly expenses while working, especially if they’re still paying off mortgages, supporting children, or enjoying a more lavish lifestyle. The transition to a fixed retirement income often requires a major lifestyle adjustment. However, it would be good practice to set a budget of $4,000 a month and see if you can comfortably live within it to ensure you don’t overextend your means upon retirement.

You could try breaking your budget into percentages such as with the 50/30/20 rule, where you break your paycheck into 50% for needs, 30% for wants and 20% for savings and allocate the funds accordingly. With the average monthly retirement expenses being around $4,345, this would look like a budget of just over $1,000 a week.

Can Boomers Live on $4,345 Before Retiring?

Everyone has their own unique financial situation, but going into retirement with a clear-cut budget based on your fixed income in mind will help you navigate a more comfortable future. The answer to whether boomers can live on this amount pre-retirement depends on a few critical factors:

1. Debt Load: Boomers carrying mortgage debt, credit card balances, or car loans may struggle to make ends meet on a $4,345 monthly budget. Paying off high-interest debt should be a priority before retirement to maximize flexibility later.
2. Location: Living in a high-cost city versus a more affordable area can drastically affect whether $4,345 will cover expenses. Boomers in major metropolitan areas may find this budget insufficient, while those in smaller towns or rural areas may fare much better.
3. Healthcare Needs: Health-related expenses can spike before retirement, especially if insurance coverage changes or medical conditions emerge. The unpredictability of healthcare costs makes it crucial for boomers to allocate more funds toward this category.
4. Lifestyle Choices: Boomers used to traveling, dining out frequently, or supporting children may find that cutting back is necessary to live within a $4,345 budget. Preparing for a simpler lifestyle before retirement can help make the transition smoother.

Preparing for Retirement on a Fixed Income

For baby boomers still working, now is the time to plan and adjust their lifestyle to see if living on a $4,345 monthly budget is feasible. Some strategies that can help include:

• Downsizing: Reducing housing costs by moving to a smaller home or more affordable location can free up significant funds.
• Paying Off Debt: Eliminating debt before retirement is critical. This can significantly reduce monthly expenses and make a fixed income more manageable.
• Building Savings: Increasing savings in retirement accounts and emergency funds can provide a financial cushion when expenses inevitably rise.
• Test-Driving a Retirement Budget: Boomers should try living on $4,345 per month for a few months before retirement. This “test run” can highlight any gaps or areas where adjustments are necessary.

Final Take To GO: Is $4,345 Enough for Boomers?

The bottom line is that while $4,345 may seem like a healthy retirement budget, it’s important to remember that every person’s situation is unique.

Boomers with lower debt and healthcare costs, living in affordable areas, and comfortable with a simpler lifestyle may find this amount sufficient. Others, particularly those in expensive cities or with high medical needs, may need to supplement this budget with savings or additional income sources.

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