Deciding how much you need in savings before retirement depends on a number of factors. Previously, $1.5 million has been the target for many, but is it still enough?
According to the U.S. Bureau of Labor Statistics 2021 Consumer Expenditure Survey, the average retiree spends $53,149 per year. The biggest expenditures for older adults are housing, transportation, health care, food and entertainment.
Housing
On average, housing in Georgia costs between $885 to $1,417 per month or $10,620 to $17,004 per year, according to personal finance company SoFi. And for those residing in assisted living, housing costs around $3,535 per month or $42,420 per year, according to the resource website Paying For Senior Care. This means that the cost of housing could take 19%-79% of the average yearly income for older adults.
Transportation
The average driver in Atlanta can expect to pay about $3,161 each year, which includes the price of gas, car maintenance and insurance, according to Atlanta Insurance. This means that transportation could take around 5% of the average annual income for older adults.
Health care
As you grow older, health becomes an increasingly important priority. Annually, older adults over 60 can expect to pay an average of $1,025 per month toward their health care, according to Money Geek. Cheaper health coverage plans can cost around $500 a month on average. This means older adults can expect to pay $6,000 to $12,300 annually for their health care.
Food and entertainment
On average, retiree households spend $550 a month or $6,600 annually on food, according to Vision Retirement. With work out of the way, older adults should keep aside money for leisure. Older adults between the ages of 65 and 74 spend $2,988 a year on entertainment and entertainment services, according to The Motley Fool.
Why $1.5 million?
Many experts say older adults should use the 4% rule when it comes to retirement. This rule means that retirees should take 4% out of their savings per year. This means that if you have $1.5 million in assets, you would draw $60,000 out yearly. Additionally, the 4% rule ensures that your portfolio will last for at least 30 years, according to Charles Schwab. The average Social Security payment per month is $2,484 for retirees in 2022, according to GoBankingRates.
This means, if you combine the 4% rule and your Social Security payments, you’ll have around $89,808 a year to spend. So, let’s say you decide to live in assisted living, you own your own car and you pay around $1,025 a month for a health care coverage plan. Your bill racks up to be around $67,469 a year, leaving around $22,339 for you to decide how you want to spend it.
Before you decide to retire, you may consider consulting a financial adviser and discussing your retirement goals. Do you want to travel? Do you want to relocate or age in place? Do you want to set up college funds for your grandchildren? All of these goals are important to consider when developing a financial plan. A financial adviser can help you decide exactly how much you need to retire and what steps to take before you do.
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