Before you can determine how much you will need to save for a fulfilling retirement, you first need to know how much you will spend in retirement. You’ll also need to factor in elevated prices on everything from gas to groceries. Sure, inflation affects everyone, but it could hurt more in retirement when your income will probably be lower.
Financial planners have estimated that retirees need 80% or more of preretirement income to maintain their standard of living, though individual situations vary greatly. And while there are plenty of things you'll spend less on in retirement, some items do stand out in a retired household, including big-ticket expenses such as health care and travel.
Here’s a look at nine budget categories where retirees are likely to spend more and some tips on keeping costs in check.
Most retirees put “travel” at the top of the list of things to do more of in their post-work years.
Maybe you plan to set off on a cruise or two. Or perhaps you simply want to pack up your car for weekend getaways with your grandkids. Either way, you may find yourself spending more on travel in retirement than you bargained for. The customer-starved travel industry is eager to get retirees back on the boat, bus, train — or into an RV.
While overall transportation expenses decline throughout retirement, many retirees take the kind of trips they could only dream about while working full-time. For instance, compared with their working peers, retirees choose longer cruises and cruises that visit more destinations, according to travel experts.
Deborah L. Meyer, a Certified Financial Planner and founder of fiduciary advisory firm WorthyNest, recommends a five-step plan for pre-retirees looking to turn these dreams into reality:
- Assign specific cost estimates to travel goals
- Break the big savings goal into monthly or quarterly allocations to savings
- Adjust income and expenses to make room for the regular savings
- Don’t compromise on future goals (that is, beyond the trip)
- Act on achieved goals
It's a blast to kick back and make big travel plans in retirement. Less fun: The reality that we spend more on medical care after we retire — and that those costs keep increasing as we age.
The Employee Benefit Research Institute found that the percentage of a household’s total spending on health care increases from 8% in preretirement households to up to 13% by the time a household is past the age of 85.
Unpredictable and costly new diagnoses and hospitalizations drive much of the increase in health care spending for the average retired household, but overall spending rises for general health needs, health insurance, prescription medication, medical supplies and medical services as well. As the National Council on Aging reports, nearly 95% of adults 60 and older have at least one chronic condition, while nearly 80% have two or more.
And according to the Bureau of Labor Statistics, adults over the age of 65 spend $7,540 annually on healthcare, while younger adults spend just $5,209.
Empty-nesters tend to relocate in retirement. Downsizing that multi-bedroom home for smaller living quarters, and ones that may be more elderly-friendly, is an obvious strategy that could save money in the long run. For the most part, that’s true. But the move-out process can set you back thousands of dollars.
You can easily be left paying thousands of dollars in related expenses:
- Getting one home ready to sell
- Listing an existing house
- Buying a new home
- Settlement and moving costs
Not to mention upgrading appliances, new lighting, window treatments and all the other tweaks you’ll do to a new living space, like these 13 home features today's buyers want most.
According to Mike Palmer, a certified financial planner with Ark Royal Wealth Management in North Carolina, downsizing in full retirement can present huge unexpected costs for some of his clients, particularly when they want to stay within urban areas. “I see a lot of folks thinking they’re going to walk away with $200,000 [by downsizing], but that’s rare. In most cases, it will be lateral,” he says. To avoid this, he recommends trying to move from an urban area to a more rural one.
Research indicates that retirement itself is a motivator to get fit. With a flexible schedule free of commuting and the stress of a busy work week, many retirees drop unhealthy habits and pick up healthier ones, raising their spending on gym memberships, fitness classes and equipment (a new bicycle, perhaps?)
Marguerita Cheng, the chief executive officer of Blue Ocean Global Wealth, says that fitness is one of the biggest new expenses she sees her retired clients take on. For her clients, she says, it is often the fear of declining health as they age that motivates them to take fitness seriously. Some of her clients put so much time and money into fitness that they schedule meetings with her around their yoga or spinning classes.
Unfortunately, according to the Department of Health and Human Services, less than 15% of Americans age 65 and older get the recommended amounts of aerobic and muscle-strengthening physical activity. But physical activity is one of the best ways older adults can improve their overall health, so it's worth the extra expense.
And you may have a workaround to gym costs: Some Medicare Advantage plans have a free gym membership as part of their benefits.
As they transition into retirement, many people’s lives aren’t radically altered. They may still drive to meet with friends or associates, grab coffee from around the corner, or use their laptop to do work from the comfort of their couch. What often does change after leaving the workforce, however, is who picks up the bill for a lot of the small stuff — lunches, parking, dinners, concert tickets. In short, so long, expensing!
"Small-business owners and professionals who retire are often surprised at how many of their expenses were picked up by their company," says Bert Whitehead, president of Cambridge Connection, in Franklin, Mich. "It is a jolt when they discover how much it adds up to."
Retirees are especially vulnerable to accumulating debt and subsequent interest. Although the average debt ballooned across all age groups between 1989 and today, older retirees were by far the hardest hit. According to MarketWatch, 65% of Americans between the ages of 65 to 74 held debt in 2022, compared to around 50% of adults age 75 and older. In 1989, less than half of adults aged 65 to 74 held debt, compared to just 21% of older adults 75 and up.
Credit cards with high interest rates carry the greatest risk to retirement security. According to the Center for Retirement Research at Boston College, "among older households with revolving credit card balances, the median household’s credit card debt equals 70 percent of their monthly income."
If bills are beginning to pile up, don’t hesitate to ask for help. Focus on paying off the cards with the highest rates first, and consider consolidating your balances on one of the best balance transfer credit cards offering a 0% interest rate if it will take more than a few months to pay off each card.
The National Council on Aging also offers tips for seniors to manage debt.
Americans age 65 and up, even with their reduced income, contribute more to religious, educational, charitable and political organizations than people from 55 to 64. According to Philanthropy Roundtable, giving peaks at ages 61-75, when 77% of households donate. And according to Age Wave, retirees contribute 42% of all dollars given to charity and 45% of total volunteer hours.
Part of this phenomenon is psychological. Researchers have found that older adults take more pleasure in charitable donations than their younger counterparts. On the other hand, older retirees may have less control over their finances than they realize. A diminished capacity for financial decision-making in retirement is “extremely common,” says Daniel Marson, a neurology professor at the University of Alabama at Birmingham. “In fact, I might say it’s inevitable.”
While many retirees have no problem managing their money into old age, it never hurts to have a trusted family member keep an eye on things. Services such as EverSafe, for example, allow a designated family member to monitor a retiree’s finances and get alerts in case of excessive withdrawals, changes in spending patterns and other unusual activity — all without the retiree losing control of their money.
Before retirement, the average household spends $104 each year on reading. Yes, it’s a category tracked by the Bureau of Labor Statistics that includes the cost of books and audiobooks, as well as devices such as a Kindle. In retirement, the average household spends $152 each year.
A greater number of subscriptions to newspapers, magazines and audiobook services — the result of a more flexible schedule — accounts for some of the increase.
How do you cut those expenses? Try your local library for free hardcover books, audiobooks, magazines and, increasingly, online access to streaming services.
If you’re entering retirement with accumulated wealth, that’s great. You may have done so with guidance from a financial planner, but then again, maybe you’ve had good luck along with regular 401(k) contributions using some sort of robo-adviser service.
But remember, the more wealth you’ve collected, however, the more elbow grease it’ll take to manage that money and make it work for you. That’s where financial advisers come in. Their services can be invaluable, but they’re not free. Depending on the management style you prefer, figuring out what to do with your money can become an expense in its own right.
Fee-only planners may charge a flat annual retainer (which could run a few thousand dollars or more), or they may charge on an hourly basis (often from $100 to $250 per hour), by the project (from $1,000 up to $10,000 for a comprehensive plan) or, if they’re managing your investments, as a percentage of assets (from about 0.5% to 1.25% of your investable assets). Or they may use some combination of those billing models.
According to AARP, retirees should continue to use financial planners to assist with relocating, with managing new medical expenses and to address changing financial needs.
