Yahoo Finance Retirement Planning: Here’s How Much You’ll Need To Save If You Live to 100
One in every two five-year-olds alive today will now live to see 100, according to researchers at Stanford University’s Center on Longevity. If you’re in that majority that plans to surpass the average American’s life expectancy of 77 years and live to be 100, you’ll need to prepare for it.
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The United Nations calls this a “longevity revolution,” and Time noted that it will challenge everything we thought we knew about health care, personal finance, retirement, politics and more.
“We really need to change the way we live in fairly radical ways,” said Center for Longevity director Laura L. Carstensen, the Fairleigh S. Dickinson Jr. Professor in Public Policy and professor of psychology. “We need to re-envision the life course, what it can look like today, and what the big challenges are that we need to address.”
And one of those big challenges is how much you need to save for retirement if you live to 100.
A well-known rule of thumb is that you need about 80% of your income before retirement to maintain your lifestyle when you’re retired. If you make the average national wage of $63,795 when you retire, that means you need to bring in about $51,036 per year.
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By breaking down the costs, you can get a much clearer idea of where your money will be going. Read on to find out just how much money you’ll need in retirement if you live to 100.
Retirement Costs for Food
Budgeting for food for a 35-year period can be daunting, so it helps to work within a reasonable range of estimates. The most recent Bureau of Labor Statistics consumer expenditure survey estimated that food-at-home spending for the 65-and-older age group is $4,797.
Based on BLS monthly estimates — which doesn’t include eating out — 35 years of food could cost you $167,895.
Retirement Costs for Healthcare
Healthcare is another expense you need to plan for in retirement. For starters, the standard Medicare premium in 2022 is $164.90 per month, according to Medicare.gov. However, your premium can vary based on your income and Social Security benefits. The Centers for Medicare and Medicaid Services announced that the standard monthly Part B premium will be $174.70 in 2024 — a $9.80 increase.
Medicare only covers so much, so total annual healthcare spending — including insurance premiums and other related costs — is $7,540 for people over the age of 65, the BLS estimated.
Based on the $7,540-per-year figure, 35 years of healthcare will cost at least $263,900. To be safe, plan for higher healthcare costs.
Retirement Costs for Housing
In retirement, your housing expenses will depend on whether you live at home or in a facility. The BLS expenditure survey found that housing costs are $20,362 per year on average for people over 65.
Living in your own home can be fairly inexpensive, especially if you have paid off your mortgage, said Brad Hunter — former chief economist for HomeAdvisor, a home improvement resource website.
“The best strategy is to put in place home modifications to allow yourself to stay in your own home, living independently, for as long as possible,” Hunter said. This can entail preparing your home by adding things like ramps, grab bars, lever doorknobs, nonslip flooring, wider doorways and the like.”
Meanwhile, the national median costs for an assisted living facility are $4,500 per month or $54,000 per year, and a private room in a nursing home can cost $9,034 per month, or $108,408 per year, according to the annual Genworth Financial Cost of Care Survey.
Based on the estimate of $20,362 per year, 35 years of housing will cost $817,670 — if you stay in your home. But it’s important to plan for the higher cost of long-term care.
Retirement Costs for Incidental and Discretionary Spending
You don’t live on food, housing and healthcare alone. There are incidental expenses that add up, plus you should plan on spending your years in retirement doing the things you love — like traveling and seeing friends and family. But, those things cost money.
The BLS found that you need to allow for $14,483 per year between transportation, entertainment and a variety of other costs, including buying clothes and eating out. This means that 35 years of incidental and discretionary spending will cost $506,905.
The Total Costs of Living to 100
Adding up the costs of all the expenses you’ll incur by living to 100, you can see that the 80% guideline is a good rule of thumb to follow.
35 years of food will cost $167,895.
35 years of healthcare will cost $263,900.
35 years of housing will cost $817,670.
35 years of incidentals will cost $506,905.
Spending 35 years in retirement has an estimated average cost of $1,756,370. The primary wild card is how much time you’ll need to spend in an assisted living facility.
Income in Retirement
You’ll have income during retirement thanks to Social Security and any savings you’ve accrued. According to the Social Security benefit calculator, someone earning the national average wage of $63,795 and retiring at age 65 at the end of 2023 can expect to receive $1,642 a month in benefits. Over 35 years, not including cost-of-living adjustments, that’s $689,640.
You’ll need to provide $1,066,730 of your own savings and income to make up the difference. Hopefully, you’ve been contributing to a 401(k) or IRA all these years, which can fill in the gaps. You might also consider taking on a part-time job in the early years of your retirement if you’re able to.
“The combination of part-time work, Social Security and pensions make that number far less scary than it seems,” said Brian Stoffel, a columnist at The Motley Fool. “Plus, you have a lot more control over your spending than you think.”
Planning for Retirement
As retirement approaches, there are things you can do to ensure a more secure future. It’s never too late to start saving for retirement, and the right saving strategy can be a big help.
Jean Chatzky, a personal finance expert and co-author of “AgeProof: Living Longer Without Running Out of Money or Breaking a Hip,” said that many people are not saving enough to afford the cost of retirement. It’s important to try to save 15% of your income, she said, but that can be challenging.
“Human beings have shown we’re not good at delaying gratification,” Chatzky said. “We’d rather buy something today than stash funds in our retirement accounts for tomorrow. That’s why ‘set it and forget it’ strategies are so helpful. You automate transfers into your retirement accounts, college savings accounts and HSAs, and the money just goes.”
If retirement is still far in the future for you, getting on an automated saving and investing plan can give you a major boost in retirement. For people who are much closer to retirement but falling short on funds, consider finding ways to boost your income now, pay off your debts, take advantage of increased retirement savings allowances and significantly cut your costs.
Gabrielle Olya and Trae Bodge contributed to past reporting for this article.
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This article originally appeared on GOBankingRates.com: Retirement Planning: Here’s How Much You’ll Need To Save If You Live to 100
