Seven out of 10 millennials think they’ll spend less than $36,000 per year in retirement.
The question is whether they’re frugal or overly optimistic. When that research came out recently — from the Insured Retirement Institute and the Center for Generational Kinetics, which also noted that today’s 65- to 74-year-olds are spending an average of $46,757 per year — much of the reaction reflected the latter view.
But more than half of Americans earn $30,000 a year or less, according to Social Security Administration wage data. Surely, then, it has to be possible to retire on that amount — or, in the case of millennials, an equal amount in future dollars. How?
Start budgeting now
Many people don’t know what they’re spending money on today, let alone what they’ll spend money on in 30 or 40 years. Enter budgeting, which solves both of those problems.
Aside from its obvious benefits — people who budget tend to spend less and save more — your budget today can help you get a handle on your budget tomorrow, says Jason Preti, a certified financial planner with Unleashed Financial in Kirkland, Washington.
“If you actually have a good working budget right now, you can identify what’s going to remain in retirement, as well as what’s not going to remain,” Preti says. “You can see that you’re not going to need dry cleaning in retirement, but with no vacation time to worry about, you might increase your travel expenses, for example.”
The most notable line item you can kick when you’re retired? You’ll no longer have to save for retirement.
Say no to debt
Or at least pay it down. People who go into retirement with debt — whether from a mortgage, car payment, credit cards or personal loans — increase their cost of living substantially.
Even a small mortgage of $150,000 at 4% interest carries a $700 monthly payment. Add in a $200 car payment and some credit card debt and you could easily be forking over $1,000 in debt payments each month. That’s 40% of your monthly budget when you’re living on $30,000 a year, or an even greater percentage if your income is taxed.
Be prepared to move
Where you decide to live can have the biggest impact on your retirement spending, Preti says. “That definitely dictates how much your base cost of living is going to be. If you retire to lower-cost-of-living Florida, you could be living like a king on $30,000.”
If you’re truly committed to retiring on that kind of income, and you currently live in a high-cost-of-living city or state, you’re eventually going to have to relocate. Florida has a reputation as a retirement-friendly state for a reason, but it’s not your only option. A NerdWallet analysis shows that Texas, Louisiana and Arizona are also inexpensive places to retire; specifically New Orleans, El Paso and Mesa. If you’re interested in a smaller city, you’ll find many options on this list.
Count on Social Security
There’s much concern that Social Security will become insolvent before today’s youngest generations retire. In reality, that’s unlikely to happen, though there may be changes to the system, Preti says. “It might be phased out significantly as retirement incomes rise, but it’s a society support system that will not go away.”
Social Security’s own projections back that up, so you should tack that benefit on to your budget. (Calculate what you might expect to receive here.) The average monthly benefit today is just over $1,300; in a few decades, it will be several times that, even factoring in proposed cuts.
Keep in mind, though, that health care costs will eat into your retirement budget: According to a 2014 analysis from the Kaiser Family Foundation, Medicare beneficiaries spent an average of $4,734 out of pocket in 2010. That number, too, will go up by two or three times by the time you reach retirement.
Just because you can retire on $30,000 — today, or in inflated dollars in the future — doesn’t mean you should, or that you’ll want to.
“I would like my clients to have the same or better standard of living in retirement. And if you really want the same or better, you’re going to be spending more. You’ll have more time on your hands, you’ll hopefully be healthy, and you’re going to want to go places and do things,” Preti says.
It’s a valid point: When you’re fresh out of college, paying off student loans and sharing a cramped apartment with a roommate, $30,000 isn’t a challenge, it’s a luxury. But as your income increases over the years, it’s harder to scale back, particularly when you have — as Preti says — a lot of extra time on your hands. Time isn’t just money; in some ways, it costs money.
So while it’s comforting to know that it’s possible to live on $30,000 a year, it’s also a good idea to aim higher and save more when you’re young, because you can’t know for certain what the future will cost and you may want some flexibility. “You want to plan for the worst,” Preti says, “not plan for the best.”
This article first appeared at NerdWallet.