Managing your finances and planning for retirement requires a good understanding of your current expenses and the ability to reasonably project future expenses. When creating a budget and planning for retirement, it can be helpful to understand what similar American households earn and spend.
The U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey for 2019 provides information on earnings and spending that can be helpful for planning. According to this survey, the average household income for 2019 was $82,852 and the average annual expenditures were $63,036. This represents an increase in expenses of 3% over 2018. During the same period, the Consumer Price Index rose by 1.8% and income before taxes increased 5.4%.
It should come as no surprise that 80% of spending typically falls within five major categories — housing, food, transportation, health care and personal insurance and pensions. In 2019, the average household spent $20,679 on housing, $8,169 on food, $10,742 on transportation, $5,193 on health care and $6,645 on personal insurance and pensions. The average married couple spends 31% on housing, 12.3% on food, 16.4% on transportation, 10.2% on health care and 11.5% on personal insurance and pensions.
Income and expenses generally decrease when you retire, and it can be challenging to project expenses for retirement planning purposes. The survey’s breakdown by age group includes figures for those between age 65 and 74, which can be especially helpful for retirement planning. The average household income for this age bracket was $65,943 and average expenditures were $55,087. In 2019, households in this category spent an average of $18,709 on housing, $7,305 on food, $8,640 on transportation, $6,772 on health care and $3,826 on personal insurance and pensions.
The survey also provided expenditures by income. Here are some average expenses for a higher-income household with earnings between $120,000 and $149,000 and an average of 3.2 people living in the household. In this income group, the average annual expenditures were $92,162. They spent an average of $10,722 on food, $27,922 on housing, $15,950 on transportation, $7,155 on health care and $13,367 on personal insurance and pensions. Please reference the U.S. Bureau of Labor Statistics website at www.bls.gov/cex/tables.htm for additional information.
This provides you some general information to compare your situation to the average American household for planning purposes. However, you should develop a spending and retirement plan based on your unique circumstances and goals. Routine expenses commonly drop by 20% when you enter retirement. However, depending on your age, health and interests, you may experience an increase in spending during the first five to 10 years of retirement; retirees often engage in travel, hobbies and home improvements that they previously had no time for. Conversely, it is common for spending to decrease during your 80s and 90s, with an increase in the final years due to medical expenses.
Jane Young, a fee-only certified financial planner, can be reached at jane@morethanyourmoney.com.
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December 06, 2020 at 02:00PM
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Jane Young: Looking at what the average U.S. household earns, spends - Colorado Springs Gazette
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