The Bureau of Labor Statistics estimates that the average household headed by someone over the age of 65 spends $50,000 a year. The biggest part of that annual expense is housing, at $16,000.
Obviously, if you can retire without a mortgage, it’s a big deal. It can make a big difference in your after-work life.
In 2019, the maximum Social Security payment at full retirement age (FRA) is $2,861 per month. If you manage to hold out to age 70, that increases to $3,770.
If you do the simple math, at a person’s FRA, the maximum benefit will pay $34,332 per year or, at age 70, $45,240. Filling in the gap from the Bureau of Labor Statistics’ estimate of $50,000 per year is not an impossible leap.
Whether from savings or part-time work, it seems reasonable to be able to generate $5,000 to $15,000.
The problem, though, is that in 2019, the average Social Security payment is far from the maximum. It sits at $1,461 per month. That’s just $17,532 a year.
Some estimates place retirement savings for the average person in the $80,000 area. Even if we withdraw 5% from that nest egg, we come up with only $4,000 a year.
Of the baby boomers, 30% have nothing. But for the other 70%, the median amount saved for those born between 1948 and 1953 is $290,000.
If we stick with a 5% withdrawal rate, that accounts for $14,500 annually.
If your savings fall around the median, with the average Social Security benefit, you’re sitting at somewhere around $32,000 per year in income. Anyone can see why the number of people working well into their “retirement years” is on the increase.
If these numbers are accurate, and I have no reason to doubt them, the only quick and simple way to a manageable and livable budget in retirement is to retire without a mortgage.
Benefits of Paying Off Your Mortgage Early
If we go back to the Bureau of Labor Statistics’ average annual spending of $50,000 per year in retirement, of which $16,000 is for housing, and we can eliminate a mortgage or rent payment, your average expenses should be somewhere in the area of $34,000.
That’s well within striking distance for most if they fall within the boomers’ median savings number.
It certainly is not a cure-all, and I have no illusions about how difficult it is to pay off a mortgage before you retire or how many people can’t reach $34,000. But it is a concrete expense reduction goal that is right in front of you, and it can make a huge difference in your golden years.
And you can’t put a number on the security you gain by owning your home free and clear. Take a serious look at your expenses, now and in retirement, and target the biggest bill you’ve got now and will continue to have: housing.