As a Gen Xer, can you live on $4,345 a month after retiring?
The average retiree obviously makes it work. For Gen Xers looking ahead to their own retirement in the not-too-distant future, consider the following ways to stretch a limited retirement budget further.
A monthly budget of $4,345 goes much further in Cincinnati than in San Francisco.
Sure, you would probably struggle to retire on $4,345 in the Bay Area, New York City, or Washington DC. The median rent in San Francisco alone would eat up most of that monthly budget, at $3,371 per Zillow .
But elsewhere in the country, you could live a comfortable life. For example, the $1,300 median rent in Cincinnati would keep your housing costs under 30% of your total monthly budget.
Not everyone wants to move in retirement however, and you do have other options to reduce your housing bill.
Whether or not you move, get creative in cutting your housing costs.
Of course, you can pay off your mortgage before you retire. You’ll still have to pay for property taxes, homeowners insurance, and maintenance, but at least you won’t have to shell out money to the bank every month for principal and interest.
Paying off your mortgage requires plenty of money, however. You could pay it down yourself with extra principal payments — or you could have someone else pay it off for you.
Consider house hacking to trim or eliminate your housing payment. The classic model involves moving into a small multifamily property and renting out the neighboring unit or two so the rents cover your mortgage payment. But you could also add an ADU to your property and rent that out, if you don’t feel like moving into a duplex or triplex.
Or you could get even more creative and rent out storage space or parking space. You could rent part of your property on Airbnb or the entire property when you’re not using it.
Control Car Costs
Most people don’t realize just how much it costs to own a car when you add up all expenses, including maintenance, repairs, insurance, gas, registration, and parking.
According to AAA , the average new car costs $12,182 per year to own, operate, and maintain. A single car would eat up $1,015 of your limited $4,345 budget! And most married couples each have their own car.
Plan to stop hemorrhaging money on cars in retirement. If you’re married, consider dropping to a one-car household once you retire (or better yet, before then). Look into moving to a more walkable neighborhood, where you could potentially live without any car at all. Before you dismiss the idea, consider that my wife and I haven’t had a car since 2019.
And, of course, drive your existing car as long as possible.
Avoid Taxes (Legally)
As you plan for retirement, think about investing through Roth accounts to prepay taxes once and for all. You won’t pay a dime on taxes when you withdraw the funds in retirement.
That means you wouldn’t have to dilute your modest budget even further to account for Uncle Sam’s take.
Consider converting your traditional retirement account funds to a Roth account to bite that tax bullet now and avoid taxes eating into your retirement budget.
Prioritize Health
Healthy retirees can bathe, shop, and cook for themselves. They can clean their own homes and mow their own yards.
Now imagine having to pay someone to do all of those tasks for you — all on a monthly budget of $4,345. That math isn’t pretty.
In-home nursing care costs between $1,000 – $4,000 per month, according to NurseNextDoor.com . Average homemaker services cost $5,720 per month, and average home health care aides cost $6,292.
Take better care of yourself to minimize the risk of draining your budget on in-home support services. Exercise every day, eat more vegetables and healthy proteins, and minimize sugar and alcohol. You know what it takes; now you just need to do it day in and day out.
Final Thoughts
Do you know where a monthly budget of $4,345 affords an even more comfortable life?
Almost anywhere else in the world. My wife and I spend most of the year in Lima, Peru, and live a comfortable, almost luxurious life on less than $4,345. Don’t rule out retiring abroad, especially in the first few years of retirement. You can reduce sequence of returns risk in the vulnerable first few years, living well on a limited budget. And if you get homesick, you can always move back to the States.
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