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  • Could you live on just $32,000 per year in retirement?

    August 5, 2016 | Blog | ReyJon2016
  • Could you live on just $32,000 per year in retirement?

    Many retirees already do, according to a  survey by Transamerica Center for Retirement Studies. The estimated median annual household income among retirees is $32,000, and more than half of retirees (53%) live on less than $50,000, according to “The Current State of Retirement: A Compendium of Findings about American Retirees.”  To be fair, there’s a sizable gap between those who are married ($48,000) and unmarried ($19,000), and there’s a big gap between retirees in their 50s ($56,000) and those in their 70s and older ($29,000).

    Still, the question is worth asking: Could you live on just $32,000 and, if so, how?

    • Not easy.

    “Financially speaking, living on such limited means is not easy,” says Catherine Collinson, president of Transamerica Center for Retirement Studies. In fact, 42% say that they are having difficulty making ends meet. Others, meanwhile, say living on a modest income is possible, though not without its challenges. “I think for the ‘average’ American household, $32,000 is doable but will likely result in changes in lifestyle that will be significant for some households, especially those living off more before retirement,” says David Blanchett, head of retirement research for Morningstar Investment Management.

    • No mortgage, no debt.

    One key to living on a modest income in retirement? No mortgage. “Most of my clients who are living on less than $32,000 annually usually have their homes paid off,” says Joseph Clemens, the owner of Wisdom Wealth Strategies. “Without the burden of a mortgage, they simply don’t need to take as much income, whether they have it to take or not.” Of note, nearly 70% of homeowners over 75 have paid off their mortgages, while only a third of those 55 to 64 have, according to the Center for Retirement Research at Boston College. Having a plan for debt is critical, too. “If you are going to have a modest income in retirement it is important to address the debt issue early so you can plan accordingly,” says Anthony Bartlett, a financial planner with Baystate Financial Services.

    • Keep health care costs in check.

    Health care expenses represent on average 12.2% of expenses for retirees ages 65 to 74 and 15.6% for those age 75 and older. In the Transamerica survey, 84% of retirees had major medical insurance, including Medicare and Medicaid, in place and 47% had a Medicare supplement insurance (Medigap) plan as well. You’ll need a plan for unexpected health care costs as well. Transamerica reports that many retirees “may be ill-equipped to deal with a financial shock such as the possible need for long-term care.”

    • Create a financial plan.

    Retirees can improve their long-term financial condition by creating a financial plan. According to Transamerica, just 41% of retirees have any sort of retirement strategy — and of those, only 4% had a written plan. The best retirement plans are written and reviewed at least annually. The plan would detail all sources of retirement income, including Social Security, pensions, accounts earmarked for retirement and work, and it would categorize expenses into three categories; fixed, semi-variable, and discretionary. “They need to keep a tight rein on their expenses,” says Victoria Fillet of Blueprint Financial Planning.

    • Plan ahead.

    “The best advice is to plan as far ahead as possible — even if that’s only a couple of years — so you know your situation with eyes wide open and not just retiring, like a lot of America does, at a certain age, say 62, because that’s what their friends are doing,” says Marta Shen of Spring Street Financial.

    • Delay Social Security.

    Many retirees start collecting Social Security at age 62, and just 1% wait until age 70. What might you do? “Delaying Social Security claims may be the best investment,” says Sudipto Banerjee, a research associate at Employee Benefit Research Institute. “For many prospective retirees, waiting until 66 would mean a 25% increase in an inflation-indexed annuity income. It’s hard to find such value in the private annuity market.”

    • Work longer.

    “People who realize they will have a very modest income need to plan to work longer and/or move to a small town where cost of living is much lower,” says Douglas Gross, a financial planner with Raymond James Financial Services. If you’re retired and having trouble making ends meet, go back to work even if it’s only part time.

    • Be happy.

    The silver lining? Many retirees — despite modest incomes — are happy. More than nine in 10 (94%) retirees say they are generally happy, 90% are enjoying life and 84% have a strong sense of purpose.

    Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch. Got questions about money? Email Bob at [email protected].