How to Retire on $12,000 a Year

Most people would consider it impossible to retire on $12,000 per year, but MSN Money says it can be done. The key to their strategy is that people move in with others and share the costs of living (thus reducing the burden on any one person.) The details:

The solution is social. It is called sharing, having enough social skills to multiply your effective income to a level far greater than it could be made with ordinary cash.

Though two people can't live for the price of one, the cost of living doesn't double when you get married. Divorce, on the other hand, involves returning to the dis-economies of nonshared living. That's why it's common for one ex-spouse, or both, to have a lower standard of living after divorce.

The piece goes on to compare a person living alone:

Imagine a single retiree living in a 55-and-over trailer park. She has a monthly net Social Security benefit of $1,000. From that she has to pay $400 for land rent and $300 for the loan payment on the manufactured home. That leaves only $300 a month for food, clothing, transportation and everything else. It's not a pretty picture.

To someone who lives with one, two, or three other people (relatives, friends, or whatever.) Here are the results shown when our imaginary retiree moves in with just one other person:

With one roommate with the same net income, household income doubles to $2,000. That leaves $1,300 after shelter expenses. That's tight, but two people can eat and buy other necessities with $1,300 a month. In effect, each person has $650 a month to live on after shelter expenses, simply by living together.

With two roommates, the monthly amount leftover is $2,300 and with three roommates it's $3,300.

The main impact in the numbers above deals with the cost of housing. But the piece argues that other expenses could be shared (such as a car) to make living together even better financially.

Of course, such tactics have their downside:

Note that this is not a utopian commune or a spiritual community. It's just four retirees figuring out how to get along in a trailer park. Some readers -- perhaps R.S. -- will say that making such arrangements isn't that easy.

They'd be right. But sharing offers a major "return" for being creative and flexible. Cooperation is a wonderful but generally overlooked substitute for money.

But at least it's a worthwhile consideration. Many of us had roommates at one times in our lives, why not do the same at retirement?

Anyone with any thoughts on this suggestion?

Comments

[rhea]

It's interesting how it's anathema to a lot of people to even consider the idea of roommates. But I'm an adult and I can say that having a roommate has enlarged my life immensely. It's great. And, yes, there is a huge amount of money to be saved.

[dwr]

Those sound like people who spent WAY too much on their pets throughout their lives.

[tgoode]

It is interesting to me that if two people choose to live together they can reap the benefits described. However, if those two people that live together happen to be married, then the government treats their income differently and they are taxed much more than if they were not married (this is the case at least if their incomes are similar). Doesn't sound fair to me (you guessed it - my huband and I suffer greatly from the "marriage penalty tax"!)

[The Hoss]

Yes,it is possible for two,three, four and five people to survive and retire on $12,000 a year. But I do not see a lot of privacy happening here. It would far better to lead a life full of enjoyment and recreation with a mate of once choice rather than the above scenario. A little financial planning early in live is a much better alternative.

The Hoss

[Lord]

It is not that difficult to live on that without sharing expenses. The key is to own assets that provide necessary services at minimal cost. Have company provided health care in retirement. Live in a less expensive area. Own that house. It amazes me that someone would consider retiring without owning their home.

[Chris]

dwr - what is up with you and pets? You need some perspective on what people spend money on.

As for the roommate idea, to a certain extent some retirement communities have these communal living price benefits built in. My grandparents moved off a farm several years ago and now live in an apartment building with hundreds of other retirees. Everyone is very social and there is always the option of dinner downstairs to buy if people want. Living in one place eliminates the much of the need for travel and there is always something going on.

But, I think the real value of their place and the ideas mentioned in the post is the social aspect of living with others, especially in retirement. I am sure it makes you live longer and happier than going it alone. Not that we all need to share a bathroom mind you!

[Chris]

Thinking about this, of course living together in old age is not new. It was normal to move in with your children when you got old in the past and whole families living together made life much easier and provided a very strong community.

[Aaron]

I think it's a good idea as long as you can align yourself with other folks that share your interests. My wife and I have a roommate in our home right now for this very reason; it's cheaper for us. We get some extra money each month (goes toward debt repayment) along with help with some of the common household chores (house cleaning, dishes, etc). It's tough every once in a while, but overall we think it's worth it.

[Anitra]

Lord: That's good advice for someone who still has time to plan for such things... although I laugh at the idea that anyone more than 10 years from retirement will be able to plan on having company-provided healthcare.

Re: owning your residence: My parents sold their house when they divorced (after retirement for my mom, and shortly before retirement for my dad). My mother moved to a higher cost-of-living area to be close to her family, and could not afford to buy her own place without severely depleting her nest egg. It's better for her mental health to be renting somewhere where she's happy and engaged than to own in a place where she'd be miserable.

That said, I do suspect that she will eventually move in with us when her health gets worse and/or her expenses increase.

[Kiran]

People who work for $7.25 dollars an hour, after SS, Medicare, Federal and state taxes have about $12000 left (assuming they are full time 40 hour types). There are people who end up living the majority of their lives like that. Its called poverty. A noticeable percentage of this country lives in it. Note that $7.25 dollars is next years minimum wage.

Its depressing, but its true.

[Todd]

Well, Kiran, if those folks don't like making $7.25 an hour they should find another job that pays more. For example, I didn't much like making $3.35 an hour back in the early 80s (that was the minimum wage then), so I decided to go to college and then to law school and now I make a bit more than $3.35 an hour. As a result, I'm no longer depressed. :-)

[Mark]

Interesting article and I'm sure people can make that work. My goal is to retire financially independent.

[Kevin]

I hope my wife is the only "roommate" I have when I'm retired. Roommates are fun in college and on trips, but doesn't sound too great later on in life.

And Chris, the pet thing is a recurring joke around here. Pretty sure rwh was trying to get FMF riled up.

[Kevin]

Whoops, meant dwr not rwh.

[MonkeyMonk]

This post reads like a shining endorsement of polygamy. In purely financial terms, of course. :)

[Todd]

I was thinking the same thing that Kevin posted, to wit: the only roommate I want is my wife. Fortunately, since I don't have any children, I have saved enough that I should be able to have more than $12,000 a year to live on. (Take that, FMF!)

[Early Retirement Extreme]

Yes I got tons ;) .. law of diminishing returns for one.