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HOW MUCH INCOME do I need to retire? That’s a question many Americans have. I recently learned the hard way how different the answers can be. On a Facebook group, a person posted the question, “Can I retire on $40,000 a year?”
I thought the question was about living on $40,000 a year after earning a much higher salary. I was wrong and insensitive. I replied from my life perspective that it would be tough to live on that amount for 30-plus years in retirement. My property taxes and homeowners’ association fees alone are more than half that amount, and in normal times I spend $20,000 annually on travel.
Other members of the group took me to task, and rightly so. Then I recalled that tens of millions of Americans live on that amount or less for their entire life. The median retirement income is $47,357, which means half of retirees live on less. By some estimates, 40% of retirees get by solely on their monthly Social Security check.
What about lifestyle? Again, the comments from others brought me back to reality. Those living on $40,000 a year or less often described themselves as doing fine, enjoying retirement, and even being able to travel and live comfortably.
It became clear that what makes people comfortable and able to enjoy life isn’t all about income. I like staying in nice hotels, book mini-suites when I take cruises and rent houses in Florida in the winter. By contrast, one person said their desired travel was a road trip—sleeping in the back of their minivan and stopping at free campgrounds.
A woman described her comfortable lifestyle as having no debt, not going out to eat and living frugally, just as she had done her entire life. The words “living simply” popped up frequently.
When their mortgage is paid off and the kids are out of the house, one couple planned to retire “easily” on $40,000 a year at ages 54 and 56. Retiring at 54 is truly beyond my comprehension.
Is living simply and having enough to “get by” a sound retirement goal? Or is it what many people must settle for based on their circumstances? When I hear people talk about retiring before age 60, and living frugally to do so, I believe these retirees are living too close to the edge. They’re too optimistic—and perhaps naïve—about the next 30 or 40 years.
Maintaining your preretirement lifestyle may sound easy. But the nature of expenses in retirement, plus inflation and the ups and downs of the stock market, say otherwise.
I retired at 67, when I was sure that my retirement income would equal the base pay I earned before retiring. Did I miss out on a decade or more of enjoying retirement? Did I trade some of my present leisure years for greater security? I did, and intentionally so. I don’t feel cheated, but I do feel financially secure.
“I retired at 67, when I was sure that my retirement income would equal the base pay I earned before retiring. Did I miss out on a decade or more of enjoying retirement? Did I trade some of my present leisure years for greater security? I did, and intentionally so. I don’t feel cheated, but I do feel financially secure.”
What’s missing from the above is that you took a huge gamble – and won. You ignored another massive risk: staying healthy and alive long enough past 67 to experience enjoyable retirement.
Sadly, those who shared your thinking but didn’t win that gamble are not around or cannot share their perspective. So…confirmation bias.
There are so many stories of people passing away after working too long – and never getting to enjoy their retirement dreams. I am sure their loved ones would rather have a lower standard of living and build more modest retirement memories together, vs be left alone prematurely with a bigger nest egg.
It’s a tough call when to retire – too early and risk financial safety. Too late and risk losing something you can’t buy more of.
These and many other comments elsewhere indicate living on $40,000 or some times less in retirement and for many more years than from the old traditional age 65 is very feasible. That makes me wonder be that the case why is accumulating sufficient retirement funds so difficult for many earning very average incomes while working given SS will make up 35 to 40% of the total income.
I don’t think its an either or, I could have retired at 54 with more than enough money but worked until 60 because it was still a lot of fun. To me the right retirement age is the longer of two options. One is how long it takes you to become financially independent with margin and the other is when work stops being fun. In my case I hit financial independence a few years before work stopped being my favorite hobby. In your case you retired exactly when you had FI with a healthy safety factor. I think we both made appropriate choices.
I think you are right.
Nice piece, Dick. Like any budget decision, if one expands one’s options, one has more choice and power. We lived very well in retirement for under 40k abroad, retiring in our 50s. That included money for traveling around Europe seeing the sites. Ex-patting is not for every American, but it’s a wonderful experience for many and is surprisingly affordable.
I also think a mindset change helps. We separate many aspects in our lives into necessities and luxuries, but often the reason something is a “necessity” is just because we’ve always had it and fret about life without it. Two cars was a necessity when we both worked. Moving to Europe, we had no cars and used the excellent public transport system. Moving back to Dallas (where a car is a necessity for us), we made due with just one well-used one.
Seriously…why are more and more taxes the political answer to most problems/issues…isn’t that the definition of insanity?
“Retiring at 54 is truly beyond my comprehension.”
I retired in 2000 at 53. My standard of living did not change. My pension was 40% of my last year’s salary, but my taxes went down, I paid off my mortgage and I stopped saving for retirement. What counts is not how much you were making pre-retirement, but how much you were spending, and what you spent it on.
I did do part-time contract work for a few years, I did draw on my ex-husband’s social security for a few years, and now I am drawing my own SS I am once again spending less than I take in. But in a couple of years when I move to a CCRC I will finally need to start drawing on my portfolio.
You have chosen to live in a HCOL area so naturally your expenses are higher – my property taxes went up to $3,000 this year and my HOA fees are $600/year. I took early retirement so that I could travel, and I traveled extensively for fifteen years, but I did not cruise, I did not stay in posh hotels (much prefer pensions and B&Bs) and used trains and buses wherever possible. $20,000 would buy me months on the road – it’s a couple of thousand less than I spent in 2016 for a three month trip that included an expensive tour (unusual for me) of Uzbekistan, and that was close to my most expensive year.
That said, there are undoubtedly people trying to get by on too little, just as there are people with more than they need. Thinking that your own lifestyle is representative is indeed a mistake.
Keep in mind that $20,000 is for two people twice a year or so.
That last paragraph describes my situation to a tee … I would think that the area of the country one lives in has a huge part to play in these numbers
Having been a member of the HD community for almost five years now, I can relate to your experience of trying to understand how other people’s definitions of ‘comfortable’ and ‘financial secure’ vary.
I read many of the articles and blog posts and am amazed by some of the figures thrown out. $20,000 a year on travel? Yikes. The most expensive trip I’ve ever taken probably cost $2000. Property taxes and HOA fees that are more than $20,000 a year? I can’t even fathom that. Paying $3500 a year in property taxes (and no HOA fees) makes me cringe.
But I’ve always lived a very modest life. I will retire–with 30 years of work experience–never having made more than $80K a year. For several years I lived off $35K a year, so I could save enough to retire (at least from full-time work) at a relatively young age.
My husband and I definitely live a ‘simple’ life. He travelled extensively when he was younger and has no desire to do so now. I’ve never travelled much, but when I did, I didn’t find much enjoyment in it. Sitting in the sunshine, reading a book and watching our four dogs play with each other is what makes me smile.
Could I happily live on $40,000 a year? Absolutely. I’ve done it before.
I can relate very strongly to this Kristine. Heck, my wife and I live comfortably now on quite a bit less than $40k/year, not by necessity, but by choice. But maybe that choice is part of what makes it comfortable for us. And the whole fetish of retiring just to travel? I don’t get that either, but maybe because when it comes to travel we’ve have been there, done that when we were younger and it just isn’t as much fun as it used to be. And we like our stuff too–we’re creative people, and sitting around in a just-big enough space with nothing to work on isn’t our style. We dearly love our cat, too, and really enjoy volunteering at the local animal shelter to walk the (big!) dogs and help with the other animals as we are able.
So yeah, we can personally attest, it doesn’t take a ton of cash to be happy and comfortable. For us, just trying to make a positive difference in the lives of those around us–both people and animals–is really all we need most of the time.
Can’t speak for others, but when we were younger raising four children and paying for their college there was no money or time for travel.
I’m not talking about vacation travel, but educational, to see only what you read in books or watched on TV. To experience what other people see as normal and you don’t. To experience art masterpieces up close. To try and communicate with people who speak a different language.
I learned more about the Middle East traveling in Israel and the West Bank and talking to people on both sides than in years of news reports.
I once stood in the American cemetery in Normandy with a man who had landed on D-Day As they played taps he began to cry and the rest of us soon followed. There is just something about walking in the footsteps of history.
My children have no desire to travel either which I cannot understand and find upsetting. To me it’s like saying you have no interest in reading a good book.
Amen! My husband and I just did our first volunteer session with a local animal shelter yesterday. We walked several German Shepherd and Malinois dogs. Walking a few dogs–that desperately want some attention–in the early morning sunshine was pure bliss. And it didn’t cost us a single penny.
Of course location is a big factor in expenses. Those property taxes are not on a mansion, but a condo and typical of the area.
I never traveled outside the US until the year before I retired. I like to travel for the education of it, meeting new people with very different ways of living.
Visit a concentration camp and see how it makes you feel or walk in the Kremlin and get the vibes of that society or visit a seniors home in rural Russia and get a sense of different living standards. Stand in the field of the Charge of the Light Brigade or walk the streets of Pompeii.
Definitely not a vacation. i don’t go to the islands or resorts mostly because I’d be bored sitting in the sun. Hey, whatever makes a person smile works.
Each to his/ her own, but more people traveling would make this a better world. I only wish I started sooner.
Yeah, here in my over-55 community property taxes and association fees on a two-bedroom condo range from $12,000 to $20,000 a year. We do have to maintain three pools, two clubhouses, the tennis courts, ten miles of roads and driveways, and we have a staff of 30. So that’s what it costs to live here!
Many of the people in my area move away when they retire, because they can’t afford to live here any more.
It’s so interesting to hear the costs associated with similar living situations to ours. We’re in an over-55 community outside of Phoenix. Our property taxes went up $30 this year–to $1100 annually. And that’s for a nearly 2000 square foot home on a 10,000 square foot lot. Our association fees are $497 per person, per year. That gives us access to seven pools, four fitness centers, a full-service (and huge) library, numerous tennis courts, etc. I suspect the low cost of living here helps explain why property values have practically doubled since 2019.
That’s amazing, a house and property for those taxes. I was only talking about a condo with 12 units in a building. Sound like unite a large complex which I guess helps with the fees.
Dick, thanks for an intriguing article. I went to the referenced article on median retirement income. It showed a wide variation based on age. Retirees over 75 had a median income of $34,925!
Working with AARP’s TaxAide exposed me to this side of the retirement data., and put a face on it. Many are widowers with one SS check, a small pension if they are lucky, a paid-off row or twin home in an older neighborhood, medicare, and often other relatives living with them to share costs.
Some of our clients did not need to file federal taxes, but came in so we could file for PA’s Real Estate tax rebate – up to $650 per year. I did not know the program existed, but many seniors depend on that extra few hundred.
They were also some of the nicest people I’ve met, very grateful for the service being provided. They seemed financially stable, if not rich. I’m guessing some had support from their children if needed. I’m glad I get to help them, in a small way, once a year.
Trying to figure out data is a challenge. According to Statista the median household income for 65-74 year olds is $46,360 and for 75+ $54,058.
In New Jersey if you are 65 and have an income of up to $93,000 you can apply to have your property taxes frozen so you no longer pay any increase. Given the median household income in NJ is about $83,000, that’s quite a deal.
In some instances the income numbers fail to give the full story when you consider these types of perks.
In a few states they don’t tax pensions either. NJ doesn’t up to certain income limits. You can exclude 50% of your pension from taxation with an income up to $125,000 and 25% up $150,000 in total income.