How Much Should You Spend Per Month When You’re Retired

After retirement, it can be difficult to work out how much to spend each month. Spending too much creates the risk of a shortfall later, and not spending enough means that you might not enjoy your retirement as much! It is a fine balance to be struck. 

According to a study, the average household run by a person over retirement age is roughly $3,800 a month. This is only around a grand less than the monthly spend of the average US household (although this varies based on state, so moving somewhere with a lower cost of living is a good solution for many retirees). Social Security averages at roughly $1,422 a month, so for the average retiree to be spending as much as $3,300 monthly, they must other savings/sources of income. 


The average retired household spends $1,322 a month just on housing, which makes it clear that the average retired person is still paying off their mortgage, or worse, renting. If you have managed to pay your mortgage off by the time you retire, monthly housing cost would be closer to only $300 a month! Paying off your mortgage before retirement will save a lot of money in later life. 


However, there are so many other expenses to factor in on top of housing. Food, healthcare, transportation, utilities, entertainment, and anything else you have been spending money on during your working life will continue during retirement.


One frequently-recommended rule to live by is the 4% rule. This is where you add up your investments and withdraw 4% of that total in the first year of your retirement. With each subsequent year, you adjust the dollar amount to match inflation. This is a good way of increasing your chances of not outliving your supply of funds.

However, this rule is not hard-and-fast, and may not be best for your situation. It works on the basis that inflation is the only variable to consider, and applies to a specific investment plan based on past market principles of decades gone by. It also assumes that a 30-year period is the timeframe that must be covered, which does not apply to every person. Therefore, the 4% rule is best to be used as a guideline rather than a rule. It is always important to remain flexible in the face of changes in the market and in your life situation.

Life is rarely predictable enough to fit into a rule that works every year. It is always best to re-evaluate your plan yearly, and when other events occur such as illness, the birth of grandchildren, or moving house. It is also advantageous to keep an eye on the market (especially as you have more free time for this in retirement!) to adjust your spending based on market performance. 

Unfortunately, there is no single “right” answer to how much you should spend a month when you’re retired. The most important things are to work out your estimated present and future expenses, make sure that money is kept aside for emergencies, have a plan, and make sure that that plan is flexible and regularly revised. Putting in a little bit of thought and planning will pay off in allowing you to enjoy your retirement without worrying about spending!

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