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Retirement is something many people hope to do one day. It is a major life transition that requires careful planning though, especially if you have a spouse that will be retiring with you. Many people don’t consider how much money they’ll need to live comfortably for years after they stop working. Pinpointing the right amount depends on your lifestyle, location, and other factors. So, what is a good monthly retirement income for a couple? Here’s what you need to know about breaking down the costs.
Understanding Retirement Expenses
Before you start trying to figure out what your retirement income will look like, you need to have a good understanding of your expenses. Sit down and figure out how much you’ll be spending on housing, food, transportation, healthcare, and other things. In retirement, many people find that healthcare costs increase. The average retiree spends around $4,300 per month on healthcare alone. That shakes out to be about $52,000 a year. Now, some of this will be covered by your insurance plan, etc. However, it’s crucial to plan for this.
On top of that, mortgages, rent, or property taxes can take up a substantial portion of your budget. It’s important to also consider lifestyle expenses, like dining out, travel, or hobbies. By breaking down your expected expenses, you can better determine how much monthly income you’ll need.
Factoring in Location Costs
Where you choose to live during retirement plays a big role in how much monthly income is sufficient. Urban areas like New York or Los Angeles require significantly higher budgets compared to smaller towns or rural areas. States with no income tax, such as Florida or Texas, may help stretch your retirement dollars. Cost-of-living calculators can provide a realistic idea of how much you’ll need based on your desired location. Don’t forget to factor in expenses like local transportation and property taxes, which vary widely by region. Picking a retirement-friendly state can make your budget go much further.
Targeting the 70-80% Rule
Financial experts often recommend aiming for 70-80% of your pre-retirement income to maintain a similar lifestyle. For example, if your combined income before retirement was $80,000 annually, you’d aim for $56,000 to $64,000 per year, or around $4,700 to $5,300 monthly. This rule takes into account that retirees generally spend less on work-related expenses, such as commuting or business attire. However, couples with expensive hobbies or high healthcare needs may require more. Adjust this percentage based on your unique circumstances to ensure you’re saving enough. A realistic goal ensures a smoother financial transition into retirement.
Social Security and Pension Contributions
Social Security benefits often form the foundation of retirement income for many couples. On average, Social Security pays out about $3,000 per month for a retired couple, depending on their earnings history. If you have a pension plan, this can significantly boost your monthly income. Couples should carefully time their Social Security claims to maximize benefits, often delaying until age 70 if possible. Keep in mind that relying solely on Social Security may not be enough, so additional savings are essential. Pensions, while less common today, still provide reliable income for certain retirees.
The Importance of Retirement Savings
Having a robust retirement savings plan ensures financial security for couples. Experts often recommend saving 10-15% of your income during your working years to build a sufficient nest egg. A common benchmark is having 25 times your annual expenses saved by the time you retire. For example, if you expect to spend $50,000 annually, aim to save $1.25 million. Tools like 401(k) accounts, IRAs, and investment portfolios can help grow your savings. Regularly revisiting your savings goals and adjusting contributions is key to maintaining financial health in retirement.
Accounting for Healthcare Costs
Healthcare is one of the largest expenses retirees face, often underestimated in planning. Couples should expect to spend around $300-$500 monthly on Medicare premiums and out-of-pocket costs. Chronic conditions, prescriptions, and unexpected medical events can significantly increase these expenses. Purchasing supplemental health insurance or long-term care insurance can provide additional protection. Planning for healthcare ensures you’re not caught off guard by rising medical costs. A good retirement income includes a buffer for these unpredictable but inevitable expenses.
Creating a Flexible Retirement Budget
Flexibility in your retirement budget can make all the difference. While fixed expenses like housing and insurance remain stable, discretionary spending like travel and dining out can be adjusted. Building a cushion in your budget for unexpected costs ensures financial peace of mind. Tracking your expenses through budgeting tools can help you identify areas where you can cut back if needed. A flexible approach allows you to adapt to changing circumstances without sacrificing your quality of life. Couples who plan for both steady and variable expenses tend to feel more financially secure.
Tailoring Income to Your Lifestyle
At the end of the day, the “magic number” needed for you and your spouse to retire will depend on what you want in retirement. There is no one-size-fits-all answer to “What is a good monthly retirement income for a couple?” It all depends on your lifestyle, location, and plans for the future. Having a good understanding of all these things will help you build a solid foundation for your golden years.
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Drew Blankenship is a former Porsche technician who writes and develops content full-time. He lives in North Carolina, where he enjoys spending time with his wife and two children. While Drew no longer gets his hands dirty modifying Porsches, he still loves motorsport and avidly watches Formula 1.