According to bls.gov, the average one-person household retiree spending is just under $17,000 per year. This would be someone over the age of 65 and it includes food, clothing, and shelter.
With all spending categories included, the average retiree spends around $31,000 per year. That’s $2,583/month.
My first question was, what’s the quality of life of the average retiree in the US. As in, if the average spending is $31,000, does the average American retiree enjoy a good quality of life or a life of poverty?
Quality of life is subjective. There are international quality of life measures which measure how much you need to live in a particular country in order to enjoy prosperity. In the US it’s somewhere around $2,500/month, last time I checked.
My next question was, is the average retired American financially savvy? As in, are they frugal and can they get more value from a single dollar? This can’t be taken lightly. $2,500 per month of spending in the same city can stretch really far for one household and get spent in a week by another.
I think the average American has a 50% dollar efficiency. Each $1 they spend brings in 50% value. A large part of their money is spent on things they don’t necessary want or need.
It’s hard to argue with all of the waste in the US. Few will resole their shoes or mend jeans with vented crotches. Who even repairs their appliances anymore?
We are the leaders in the world when it comes to healthcare waste. As physicians we know that the waste isn’t coming from us and no employer ever forced me to prescribe medications or tests or labs. Not to place the burden on the patients but … I’m placing the waste burden on the patients.
Stepping into retirement at an older age when we need a lot of healthcare, and not knowing how to spend wisely, that can make for a financial catastrophe.
$31,000 In Retirement Spending
The average retired 65 yo in 2018 will spend $31,000 per year on the following categories:
- dining out
I realize that the average physician isn’t aspiring to have the average lifestyle of a US retiree. But it’s good to know what’s possible and then build on top of that, if needed.
I should mention that BLS also did average spending for those in their mid-70’s, and as you’d expect, the spending is even lower. The older you get, the less you spend. The average 75 yo will spend half as much as the 65 yo.
Factors Affecting Retirement Spending
I wanted to list off 4 main categories which will affect our quality if life in retirement. I’ll be addressing this in more detail with future posts. For now let’s discuss how “Retirement Quality” is measured by various organizations.
1. Financial Factors
Financial independence is obviously the biggest factor here. Will you need to rely on social security or will your have a good passive income stream from your investments?
Inflation is another financial factor because the average retiree will need to know how to protect against inflation. In this low-inflationary environment, many retirees don’t have to swear the value of their dollar. But perhaps by the time we retire, it’ll be a problem to address much like the 1980’s.
I’ve discussed tax pressures before. How will congress treat those with $5m worth of assets in retirement? Will they impose a wealth tax? Will they add a bonus tax for those who have a passive income of more than $100k/year in retirement?
Finally, debt is another factor to consider in the finances realm. Many believe that they won’t enter retirement with any debt, but don’t be so sure. Quite a few retirees in the US still have some sort debt.
2. Material Well-being
One aspect of well-being is the ability to find a job as a retiree. Or to engage in some sort of income-producing endeavor or business.
Material well-being is also what you can own. Your home, your automobiles, boat, and other personal possessions.
It’s one thing to own a nice house, but will you be able to afford servicing it or repairing it if labor costs go through the roof? What if insuring your property becomes prohibitive?
3. Quality of Life
Your quality of life is dependent on the people around you, how safe you feel where you live, and environmental factors such as climate.
The cost of your electricity bill could determine whether you’ll be suffering through a 105 degree summer or chilling down with the cool breeze of your A/C.
None of us has yet experienced a utilities crisis in the US. We’ve had market crises, housing crises, wars, and inflation. But what if your water bill eats a hole into your retirement budget?
Health is very subjected. But your life expectancy and how much you spend to achieve your own definition of health is one such factor in retirement.
If you’re not able to take care of yourself, what will be the cost of long-term care or assistance at home? As minimum wage creeps up higher and higher, how much will it cost you to have someone with no skills come and help you get dressed?
Average Retiree Household Spending
The good news is that the US ranks somewhere in the top 20 of countries in the world when it comes to retirement. That’s actually a really good score.
The average retiree who is living on $30,000 a year is enjoying quite an amazing lifestyle in the US.
But what makes all the difference is what they can do with the $30,000. If they can be clever with that spending when the economy misbehaves then they can come out far ahead when it recovers.