Here's Exactly How I Plan to Spend My Social Security Checks in Retirement

If you're like most people, your primary reason for saving and investing money during your working years is to ensure a comfortable retirement.

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That's my top reason, but I've taken things a step further. While retirement is still many, many years off for me and I know much can change in the meantime, I've even started thinking about a retirement spending budget. I'm also one of those optimists who's factoring Social Security payments into my retirement income plan (albeit at the reduced rate that may need to go into effect about a decade from now).

My plan isn't necessarily right for you: You might end up spending less in retirement, or you may end up needing more. It's also possible I'm completely wrong about how much income Social Security will provide when the time comes. To the extent my budget reflects the nationwide average, however, it could at least be a starting point for you to make a similar rough plan.

An average retiree's spending

Take all these numbers from the Bureau of Labor Statistics' 2023 survey of consumer spending with at least a small grain of salt. They're averages, but any average's underlying inputs can vary widely. More to the point, don't be too surprised if your fiscal reality ends up being measurably different than the overall average.

Still, the survey's look at the expenditures being made by U.S. residents aged 65 and up should give you a decent idea of what you'll likely be facing when the time comes. From largest to smallest...

Housing

According to the U.S. Bureau of Labor Statistics (BLS), in 2023 the typical retiree household shelled out an average of $21,445 per year, or $1,787 per month, on housing costs -- not just mortgage payments or rent, but also taxes, insurance, and maintenance.

This figure requires a couple of critical footnotes. Chief among them is that it doesn't distinguish between retiree households with one person or two; presumably, on a per-resident basis a two-person household would cost less to live in. Also, many retirees may own their homes, and so don't have a mortgage payment or rent. In light of these factors, this figure is the one with the most variance when it comes to a particular retiree's living costs.

Transportation

Surprisingly enough, most retirees' second-biggest expense isn't healthcare, but transportation. The BLS reports that older Americans still shell out $9,033 per year on average (about $753 per month) on transportation. This largely reflects car payments, but can also include gas, insurance, and maintenance. Anyone using public transportation will probably spend a little less, while two-car retiree households will likely spend at least a little more.

Healthcare

Don't be misled, though: Healthcare costs are still a big factor in retirement even with access to Medicare coverage. Typically speaking, to take care of their bodies, the over-65 crowd spends just over $8,027 per year ($669 per month) on expenses Medicare doesn't cover. Even if you have supplemental insurance -- another cost -- you'll still incur at least some health-related expenses in retirement.

Food

You'll still want to eat in retirement too, although you may not need to spend quite as much on food as you did in your working years. Maybe it's because you're eating more meals at home, or perhaps there are no longer constantly hungry children in the house. Whatever the reason, expect to spend about $7,714 each year on food in retirement, or $643 per month. This figure includes the occasional dining-out experience.

Income taxes

If you think simply being retired means you escape the pain of income taxes, think again. Although at least some of your Social Security income is tax-exempt, pension income and withdrawals from taxable IRAs are taxable. The BLS reports that retirees still pay on the order of $5,358 in annual taxes to local, state, and federal governments.

Entertainment

After working hard at a job for so long you'll actually want to enjoy your golden years. Most retirees spend nearly $2,898 per year ($242 per month) on entertainment, which covers everything from movie tickets to clubs to pet care to leisure travel.

Clothing

Although you won't need any work clothes in retirement and you'll be able to dress as casually as you want as much as you want, you'll still need some clothing. I'm planning on shelling out $1,287 per year for new apparel when I retire, in line with most retirees.

Miscellaneous

The Bureau of Labor Statistics suggests the 65-and-up crowd shells out an average of $1,052 per year on goods and services they don't think twice about, or even remember. Think things like birthday and holiday gifts, home decor, charitable cash donations, and the like.

Everything else

That's most of it, but not quite all of it. The rest of the average retiree's yearly spending is so modest that it doesn't even merit mentioning as "miscellaneous" spending. These nickels and dimes do add up though, to a typical annual total of $3,273. This figure can include items like burial insurance, subscriptions, pet-care, cellphone service, etc.

The numbers don't add up

If you've been keeping a running tab on these probable retirement expenses thus far then you've come up with a figure of $60,087 per year, or $5,007 per month. Problem? The Social Security Administration reports that this year's average monthly Social Security payment is only $1,976. Indeed, even if you're one of the lucky few that reaches the maximum possible monthly Social Security payment (and most people won't), that's still only a scraping-by, no-margin-for-error number of $5,108. And, neither of these number reflects potential payment cuts of between 20% and 25% should the worst solvency and sustainability fears about Social Security be realized.

Don't panic though! The BLS says the typical retiree's annual household income in 2023 was about $64,326, or about $5,360 per month. That's not a huge difference, but it's enough to get by.

Of course, this means that if you intend to retire comfortably, then Social Security alone isn't going to cut it. You'll need to invest money on your own, outside of the government-run program.

The good news is that it's possible for even the most modest of earners to build a nest egg that reduces their eventual dependence on Social Security benefits. Simply investing $300 per month in an S&P 500 index fund could leave you with more than $600,000 after 30 years. If you can bump the amount up to $400 per month for 35 years, the end result races to $1.5 million.

You may not have that much time, or money, for that matter. Don't sweat that too much, though. Start when and where you can with what you can, even if it's only $100 per month. Your disposable/investable income has a funny way of growing as life marches on. It's better to build onto something than start out with nothing.

In the meantime, it wouldn't be crazy to think about outright owning a home in retirement, and finding a way to limit your household's car ownership to at least one less vehicle. These are the costs taking the biggest toll on retirees' pocketbooks, yet they're also the costs that can most plausibly be curbed later in life.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.