What is a Good Monthly Retirement Income for a Couple?

What to expect in this article

A typical question often asked of advisors is, “What is a good monthly retirement income for a couple.” We examine that question in this article.

Before getting going it’s important to remember there are many issues and variables that go into attempting to answer a question of this nature. Truth is, the actual best answer for you and your spouse or partner is going to be unique to you as a couple.

Going through the process of consideration detailed below should help you determine what is a good monthly retirement income for you and your partner.

Key Considerations:

• Standard of Living
• Expenses
• Income
• Gov’t Estimate – Average Family
• Rule of Thumb Estimate

Intro

To determine what a good retirement income might be for you and your spouse or partner, a good starting point is examining your current situation. Looking at your expenses now while you are still working and earning monthly income can give you a basis for comparison and help you begin to plan a post-retirement budget.

Doing so will provide context and insight regarding what you will need to pay your bills and maintain a standard of living you are comfortable with in retirement.

Next we consider income and savings sources, and a key gov’t estimate on average household budgets, followed by a “rule of thumb” method that compares pre-retirement to post-retirement income.

We do need to point out that while you can do this on your own, it’s an involved process. There are lots of complicated financial, legal and tax issues and implications that must be taken into consideration, no matter the amount of assets you do or don’t have.

As such, it’s best to consider consulting with a retirement planner or financial advisor to ensure you’ve covered all the bases.

What’s Your Standard of Living

When it comes to determining what will be a good income for you to strive for in retirement, start by examining your standard of living now.

No matter what that standard is, ask yourself if you are adequately able to support that now. Assuming so, you can start to examine things such as a breakdown of expenses, your special life scenarios (examples include supporting adult parents or adult children or grandkids, etc.) you and your partner’s health, type of home, location, lifestyle, projected debt, recurrent bills, travel habits, charitable sharing, and more. All of these go into your standard of living.

What Are Your Expenses

When it comes to expenses, there are those that are fixed and those that are variable.

Fixed – The expenses you pay the same amount for each month are fixed. These can include housing, transportation, utilities, insurance, property taxes, personal debt, and more.

Housing – Whether you own and pay a mortgage, or rent, this is likely your highest cost each month.

• According to the Bureau of Labor Statistics (BLS – 2022), housing accounts for roughly 30-percent of the average household’s monthly income.
• Even if you have paid off your mortgage, you will likely still have housing related expenses, including property taxes and homeowner association fees.

Vehicle Payments – The BLS estimates the average household will spend about 16-percent of their monthly budget on car loans.

Utilities – Gas and/or electricity, waste disposal, phone services (home and mobile), cable and Internet, water – it all adds up.

Insurance – Think of car, homeowners or renters insurance, life, disability/long-term care, and other types of coverage you pay for each month.

• Separately there is health insurance, which is the biggest part of healthcare costs for many people in retirement. Even if you have Medicaid coverage, it often doesn’t cover everything, so there is the monthly cost of supplemental health insurance.
• In total, the BLS estimates that the average household spends 10-percent of their budget on their collective insurance costs each month. Long term care insurance will often cost you even more.

Other Debt – Credit cards, personal loans, home-equity lines of credit, student debt, appliances, furniture, dental care, and more are all things we tend to finance. As a rule of thumb you don’t want to take debt of any nature into retirement, if possible.

Assorted – If you take the same medication monthly and it costs the same then you should include it as a fixed expense. Same holds true for things like streaming services (think Prime, Netflix or HBO), gym memberships, and more. If they are monthly and cost the same, while they may be discretionary in nature, you should consider them a fixed expense.

Variable – Let’s start by setting the record straight. Many people incorrectly equate variable and discretionary spending. And they tend to think of discretionary spending as just things such as travel, playing golf, going to the movies, etc.

In fact they can be non-discretionary, such as eating, putting gas into your vehicle, going to the dentist, and much more. Costs for non-discretionary items that vary each month should be accounted for as variable expenses.

Food – According to the BLS, the average household will spend roughly 11-percent of the budget each month on food, with roughly 7-percent spent on groceries and 4-percent spent on restaurants and other food items prepared by someone else.

Transportation – These are costs for vehicle repairs, scheduled maintenance, fueling your car up, and more. And for some there are the costs of public transportation to consider.

Health-related – There are also separate expenses for healthcare that are variable. These can include occasional prescriptions, as well as non-prescription drugs, vitamins, treatments and other things that you will pay for out of pocket.

Entertainment – There are obviously many types of subcategories here, ranging from movies, theme parks, ball games, outdoor activities and hobbies, and much more. If you do them with regularity then you need to account for them as a discretionary spend within your budget. The BLS estimates that the average household spends roughly 5-percent of their monthly budget on entertainment.

Assorted – There are numerous other discretionary categories to think about when considering your monthly expenses, which can include clothing, tolls and parking fees, personal care, home repairs, and many more.

Income – Now and Post-Retirement

As part of your plan, looking at your income situation will be important. While you are still working this will probably include your salary, side work, property, inheritance, non-qualified investing, passive income from other activities, etc.

Another major area of consideration are the assets you accumulate that aren’t used for covering your expenses while working. The biggest example of this is retirement savings. Why include them while planning? Because they will be used to replace some, if not most or all, of the income you bring in pre-retirement to cover your expenses when you retire.

Examples include tax-deferred dollars invested in individual qualified accounts (IRAs, Roth IRAs, annuities, etc.), employer-sponsored accounts, like pensions and 401(k)s, and non-qualified, such as brokerage accounts with stocks, mutual funds and bonds, as well as savings, annuities, CDs, and more.

Don’t forget income tax benefits, as they are an important source of monthly income for retired couples.

Overall, making yourself aware of available assets for retirement, including engaging in income planning to maximize them, is a major piece of the puzzle when it comes to retirement planning.

Government Estimate

Now that you’ve considered pre-retirement expenses and pre- and post-retirement income, you can start to put together a post-retirement budget based on what you expect you will need.

For the sake of context and perspective, the typical family unit or household expense in 2021 was $5,577, according to the BLS. That figure has no doubt considerably increased given the inflationary period we’ve experienced.

Their income estimate for the average household in that period was $78,743 after tax, or $6,562 per month.

That equates to the average family spending roughly 85% of their after-tax income on monthly expenses, leaving a margin of approximately 15%.

How does your scenario compare? How much of your income is used to pay expenses (fixed and variable / necessity and discretionary) and how much do you have left at the end of the month and year? How much can you save for retirement each month and annually?

Go further and compare what your projected post-retirement expenses and income are. What will be left over? If there is a deficit, you will have to cut expenses accordingly or find other sources of income. You might even have to consider working longer before retiring or doing work in retirement, such as consulting or part-time employment.

Rule of Thumb Calculation

There’s a different approach you can use to determine a good retirement income. The AARP suggests that a good monthly retirement income approximates 80% of what you brought in pre-tax before retiring. Their reasoning is the fact your income tax MIGHT be lower and job-related expenses would have been eliminated in retirement.

This jives with a general “rule of thumb” estimation of 70% to 80% within the financial services industry. So, if your pre-retirement income is $100,000 annually, equating to $8,333 monthly, you would need $70,000 to $80,000 annually, or $5,833 to $6,667 monthly, to maintain your standard of living in retirement.

Conclusion

As demonstrated above, there are many things that go into determining what you and your partner might need in monthly income once you retire. Ultimately, you have to go through a process of determining your monthly expenses and comparing them to what your expected retirement income will be.

At the end of the day, a good monthly retirement income for the two of you is one that exceeds expenses, allows for unexpected issues, is able to support you throughout your lives, and enables you to achieve goals you’ve set, such as estate planning to ensure your assets pass on in the manner you want to family and other beneficiaries.

Given all the factors and variables, we suggest you utilize a professional. We can review your situation and portfolio. And we can help you customize a plan to meet your future needs and goals while at the same time providing peace of mind during your retirement years.

If you’re ready to take the next step and talk to a team of financial advisors and retirement planners who put your interests first, Schedule a call today!