Many retirees face the question of whether their retirement savings and income will be enough to support their desired lifestyle in retirement.
For a couple age 70 with $1 million in retirement savings and $30,000 per year in Social Security benefits, living on $70,000 per year in retirement may be possible but will require careful budgeting and financial planning.
In this article, we will break down the major expenses for retirees and develop a retirement budget to analyze whether this hypothetical couple can feasibly live on $70,000 per year.
Key factors will include healthcare costs, housing, transportation, food, entertainment and travel. We will also look at ways this couple could adjust their spending if needed to make their retirement income last.
Estimating Healthcare Costs
One of the largest expenses for retirees is healthcare. Even with Medicare coverage, retirees usually need to budget for Medicare premiums, copays, deductibles, prescription drugs and dental/vision costs.
For a 70-year old couple, a realistic estimate for healthcare costs is $300-$500 per month or $3,600-$6,000 per year. This covers Medicare Part B & D premiums, plus out-of-pocket costs. Healthcare costs often rise later in retirement, so it is wise to budget on the higher end.
The couple should review their Medicare and supplement plan options to find the best value. Contributing to HSAs before Medicare eligibility can also help offset future costs.
Housing Costs in Retirement
Housing is typically the largest regular expense for retirees. This couple has a few options:
- If they own their home outright, they will just need to budget for property taxes, insurance, utilities and maintenance. Overall costs may be around $1,500-$3,000 per month.
- If they still have a mortgage, their total housing costs will be higher. They should consider paying off their mortgage with a portion of savings if possible.
- Downsizing to a smaller home or relocating to a lower cost area could significantly reduce housing costs. This route could cut costs in half or more.
- Renting may also be more affordable. Average rental costs for a 2-bedroom apartment are often between $1,000-$1,500 per month.
Transportation Costs
Owning one or two vehicles will add another $300-$700 per month for car payments, fuel, insurance, registration fees and maintenance. If the couple is willing to downsize to one car or use other transportation options, they could spend significantly less.
Costs for public transportation, ride share services or an occasional rental car may average $100-$300 per month.
Food, Entertainment, Travel
Food costs for a couple averaging $400-$800 per month are reasonable, allowing for both groceries and dining out. Budgeting $200-$500 per month for entertainment such as concerts, movies, shows and hobbies is usually sufficient.
Many retirees also want to travel, so budgeting several thousand per year for one or two trips is typical. This couple could feasibly allot $5,000-$10,000 annually to travel and adjust as needed.
Putting the Retirement Budget Together
Based on these estimates, here is a sample retirement budget for this couple at $70,000 annually:
- Healthcare: $6,000
- Housing: $24,000
- Transportation: $5,000
- Food: $9,600
- Entertainment: $3,600
- Travel: $8,000
- Remaining for misc/contingency: $13,800
This budget is tight but achievable. The couple may need to be diligent about finding senior discounts, minimizing housing and transportation costs, and taking advantage of free entertainment options.
Healthcare costs and major home repairs could put pressure on contingency funds. Some adjustment in year-to-year spending would allow savings to last 25-30 years with a 4% withdrawal rate.
Ways to Modify Spending if Needed
If this couple finds it difficult to stick to the $70,000 annual budget, here are some ways they could reduce spending:
- Downsize home or relocate to lower cost area
- Reduce housing costs by taking in a roommate or renting extra space
- Cut back discretionary spending on dining, entertainment, travel
- Reduce transportation costs by selling one car and using alternatives
- Look for senior discounts/free activities to cut costs
- Consider part-time work for extra income
- Withdraw less than 4% from savings in some years
The key is flexibility. This couple should track spending carefully and make adjustments as needed. Planning discretionary expenditures wisely around healthcare costs and essentials will help make retirement income last.
Conclusion
A retirement income of $70,000 from Social Security and withdrawals from $1 million in savings is feasible for a 70-year old couple but will require diligent budgeting and flexibility.
Controlling housing, healthcare and transportation costs is key. Some adjustments in spending may be needed at times to make retirement savings last 25-30 years. But with careful planning, investment growth and selective spending cuts if required, this retirement income and savings should support a comfortable lifestyle.
The key is developing a budget and spending plan that allows flexibility for essential costs while maximizing enjoyment of retirement.