A lot of would-be retirees mistakenly assume that retiring means spending significantly less overall, but this isn’t entirely true. While you’ll definitely save a couple of thousand bucks here and there, there will be some new expenditures that usually raise the retirement cost of living for many people.
According to the U.S. Bureau of Labor Statistics, the average retirement spending for retirees 65 years and older is approximately $50,220 annually. Meanwhile, the average yearly expenditure of an average household is $63,036. So while you’ll likely save upwards of $10,000 per year, there is still a pretty long list of retirement expenses you’ll need to prepare for as you enter retirement.
Most common expenses in retirement
So, what do retirees spend money on? Unfortunately, the answer isn’t just “cruise ship and travel expenses.” But the good news is with enough preparation, you can enjoy your retirement with enough money to spare for the things you’ve wanted to do.
While you’ll probably save on things like transportation costs and payroll taxes once you’ve retired from the workforce, here are some of the most significant living expenses in retirement that you should prepare for:
|Average spending in retirement (annually)
|Healthcare and insurance
Taking the largest chunk of the retirement budget is housing expenses, which cover a wide range of home maintenance costs, including the following:
● Mortgage or Rent
● Property Tax
● Insurance Expenses
● General Maintenance
● Repair Costs
Statistics show that the average housing spending in retirement typically costs $17,472 annually, accounting for about 35% of annual expenses. Again, compared to an average U.S. household, which spends $20,679 annually on average (33% of expenses), retirees still have to shell out a significant amount of money on housing.
This is because a lot more retirees today have mortgages — 46% of the retired population, to be exact, compared to just 24% in the 1990s. That being said, perhaps the smartest thing to strive upon before retiring is fully paying off your mortgage, if possible.
Another option worth considering is downsizing your home, especially if you’re no longer in need of a larger home. If your kids and grandkids have moved out, and you’re just living with your spouse or alone, this may be a feasible option.
In any case, taking steps to build your equity and address housing costs before retiring will keep your living expenses down when you do retire, allowing you more available funds to allot for other typical retirement expenses.
Healthcare and insurance
Next on the list of the biggest expenses in retirement are healthcare and insurance, which also include medical services, medical supplies, and medications. Collectively, these amount to about $6,833 per year for retirees and $5,193 per year for all U.S. households.
Statistics also show that health insurance takes the biggest chunk of this cost across households of all age groups. As such, it’s important to gain a deep understanding of what Medicare does and does not cover before you retire.
Medicare has four parts (A, B, C, and D), with “Original Medicare” being Medicare Parts A and B. This means that the government will pay providers for healthcare costs, and almost all healthcare providers in the U.S. will accept Original Medicare; parts C and D cover private insurance and additional coverages.
Familiarizing yourself with these costs, as well as the type of coverage you can expect from Medicare, can help you prepare for retirement spending with regard to health and insurance. This way, you can also prepare for things like out-of-pocket costs in your retirement savings.
As mentioned earlier, you can expect commuting expenses to vary significantly when you retire, but you’ll still need to allot money for transportation. These retirement expenses cover the cost of maintaining and repairing your vehicle, gas, insurance, or paying for car rentals and public transportation.
Statistics show that the average transportation expenses in retirement are about $7,492 annually. While often an overlooked aspect of preparing one’s retirement plan, you should definitely consider allotting a portion of your finances for this expense.
Even more so if you live in a car-dependent community where public transportation can be difficult for aging populations to access. According to Transportation for America, about 80% of Americans above 65 live in these areas, yet little is being done to provide safe and accessible transportation options for seniors.
As such, saving money can often come down to opting for ride-hailing services like Uber or Lyft, especially if you don’t plan on using your car frequently. If you do plan on driving around regularly, though, shopping for car insurance on a yearly basis can be a great way to save money. This will help you lower one of the biggest transportation expenses in your budget and help you get the best deal every time.
A huge chunk of spending in retirement apparently goes to dining out, with retiree households spending an average of $6,599 yearly on food. While convenient, especially for those living alone, dining out may not be the healthiest and most cost-effective option.
As such, meal planning and grocery shopping are still the best options for those looking to save on food expenses. Additional practices like the following can also account for significant savings:
● Sticking to a regular shopping schedule
● Making a shopping list
● Clipping coupons
● Using senior citizen discounts
● Buying store brands
● Using a credit card with cash-back benefits
Lastly, your utilities include water, electricity, phone, and internet bills—and will set you back by around $3,810 yearly. There are many ways to cut down utility costs, though, such as installing programmable thermostats and opting for energy-saving appliances and lighting fixtures. If you’re financially capable, you may also want to consider going solar, which can save you money in the long run.
On average, retirement savings can range anywhere between $131,631 to $282,554. Depending on your retirement goals and lifestyle, you can definitely find a budget and savings goal that’s doable for you while ensuring that you can live comfortably during retirement. As with anything, preparing well and planning ahead are your best tools, especially with regard to the top expenses in retirement we discussed above.