Estimates vary, but the rule of thumb is the average retiree needs about 70-80% of his/her preretirement income to sustain an accustomed lifestyle once they’ve stopped punching the proverbial clock. Depending on your commitment to thriftiness, if you earned $50,000 a year while working, you should be comfortable on somewhere between $35,000-$40,000.
These, again, are estimates. Your mileage may vary.
Spending on a variety of core necessities was skewed dramatically by the impact of COVID-19. For instance, housing costs surged; as we sheltered in place, transportation spending slumped. Before the pandemic, however, the BLS provided the following targets for spending in its Annual Expenditure Report.
- Housing – 32.4%
- Transportation – 17.1%
- Food – 12.9%
- Healthcare – 12.2%
These are the four greatest expenses for people over the age of 65. After the age of 75, healthcare costs eclipse transportation, taking up 16% of your income, while transportation drops to 13.9%.
To be clear, these are only averages. How much each person spends on each category will vary. You shouldn’t set aside 17% of your budget for transportation if you live walking distance from your usual haunts, or you have satisfactory and inexpensive public transportation nearby.
Nor should you throw budgeting to the wind for a European vacation just because you really want to see the Eiffel Tower or ache for bratwurst by the Danube.
In short, financial planning is not just for youngsters still building their lives and careers, saving for the kids’ college, and investing for retirement. Financial planning is for anyone who manages a household budget with an eye to maximizing its potential.
There’s plenty to read on the subject online, in bookstores, and at the library. And the local community college or credit union can be a reliable source of information.
“If they have equity in their home,” Solomon says, “seniors can take advantage of reverse mortgages to pay off debts. For unsecured debts, they can enroll in a debt settlement or a management program. Bankruptcy for seniors should be their last choice at this advanced age.”
Among the best for helping stressed consumers, including seniors, get on top of their financial are nonprofit credit counseling organizations. Experts certified by these agencies have heard every horror story, and they know the tools to cure your financial nightmares — without cost or obligation.