There’s no perfect formula for a comfortable retirement, but even so, workers nearing retirement age may largely underestimate how much they’ll need to budget.
A recent report from the Nationwide Retirement Institute found that the expectations of retirement-age workers don’t always align with the financial realities of those who are already retired. In a survey of 1,000 U.S. adults ages 60 to 65, retired respondents said they spend much more on basic expenses than they expect those who are still working will need.
Retirement Expectations vs. reality
Judging by the survey results, American workers preparing to leave the workforce may be misjudging what their cost of living will be once they retire. Current retirees say they spend 53% of their budget on basic necessities like housing and food, while workers say they expect such expenses to account for just 42% of their income.
Additionally, current workers said on average they wanted to retire at age 67, but retirees reported exiting the workforce an average of seven years earlier, at age 60.
It may not be surprising, then, that current lifestyle expectations among workers do not perfectly match what retirees report. While 68% of retirees surveyed said they had a “moderately” or “very” comfortable lifestyle, nearly a third said they were not financially comfortable.
Among retirement-age workers who have not yet retired, 77% said they expect to feel moderately or very comfortable. Only 23% said they did not expect to feel comfortable.
The cost of retirement varies based on factors like location, debt and lifestyle choices, but data from the U.S. Bureau of Labor Statistics shows that families aged 65 and older spent on average $4,345 per month in 2021.
The impact of an insufficient budget
What’s a retiree to do when daily expenses consume so much income? In some cases, he returns to work.
According to the national survey, about 1 in 3 are actively planning or considering re-entering the workforce, and 45% of that group said it’s because they’re afraid of running out of money. Smaller groups said they wanted to return to work to add more structure and socialization to their lives.
These findings are in line with a September analysis by investment management firm T. Rowe Price, which found that 20% of retirees work full-time or part-time. About 48% said it is for financial reasons and 45% said they work for social and emotional benefits.
Social Security shortcomings may be partly responsible for discrepancies between workers’ budget expectations and the experiences of current retirees: The national report found that 36% of retirees said their benefits turned out to be lower than expected.
With the trust fund that finances Social Security headed for insolvency, benefits could be cut even further by 2033 if lawmakers fail to pass a financing solution. If that happens, the Committee for a Responsible Federal Budget, a public policy organization, estimates that retirees could see a universal benefit cut of 23%.
Nearly 75% of retirees surveyed in the national survey said such an outcome would impact their retirement “a lot,” and 71% of respondents who are still working said the same. Overall, they feel quite pessimistic about the public safety net: Only 41% of all respondents expect Social Security to exist in its current guise during retirement.
More from Money:
Early retirement savers are running out. ‘Coast FIRE’ could be the answer
Which pension? More and more Americans age 65 and older are working full time
6 Smart Ways to Manage Debt in Retirement