Biggest Expenses for Retirees & How to Minimize Them!

Retirement

Jan 6

According to the most recent Bureau of Labor Statistics (BLS) data, retiree households—led by individuals aged 65 or older—spent an average of $60,087 in 2023, a figure 3.9% higher than the previous year. By comparison, average spending across all U.S. households was $77,280, representing a year-over-year increase of 5.9%. In this article, we’ll cover the largest expenses the average household encounters during retirement along with a few tips on how to minimize the same.

Housing

As people age, housing expenses generally decrease—but this reduction is not as steep as one might expect according to BLS data. In 2023, housing expenses—mortgage payments, rent, property taxes, insurance, maintenance, and repair costs—averaged $21,445 (approximately $1,787 per month) for retiree households, accounting for over 36% of annual expenditures. In comparison, the average U.S. household spent $25,436 on housing costs during this same timeframe (32.9% of yearly expenditures).

A closer look at the data reveals retiree households spent $12,545 (58%) on shelter—which, for owner-occupied properties, represents mortgage principal payments, $4,526 (21%) on mortgage interest/charges and property taxes, and another $3,427 (16%) on maintenance, repairs, insurance, and other expenses.

Paying off your mortgage and building equity before retirement is a smart strategy to keep your living expenses manageable after you stop working, an approach that gives you more flexibility to better manage other expenses. If the latter isn’t feasible, consider downsizing your home or relocating to a state (or country) with a lower cost of living.

It's also crucial to plan ahead regarding housing, especially since most homes are not designed with aging in mind. If you require wheelchair accessibility or need to renovate a bathroom or convert areas to ensure everything is on one level, for example, expenses can add up quickly.

Transportation

While commuting expenses will undoubtedly shrink when you retire, not all transportation costs will follow suit. The latter category includes vehicles, gas, insurance, maintenance, repairs, car rental, leases, payments, and public transportation.

The average retiree household spends $9,033 annually ($753 monthly) as compared with $13,174 ($1,098 monthly) across all households with respect to transportation costs: a rise of 10.5% from the previous year for retiree households fueled by a large increase in public and other transportation spending. This includes fares for mass transit and airlines as well as an increase in vehicle purchases (net outlay), calculated by taking the purchase price of a new vehicle and subtracting the trade-in value.

Engaging in a meaningful discussion about transportation expenses is critical as you prepare for retirement—especially for those set to live on a fixed income. When you consider that most seniors over age 65 live in car-dependent suburban and rural communities (according to the advocacy organization Transportation for America), these conversations become even more imperative.

Shopping around for auto insurance each year is one way to save money, especially if owning just one car between you and your partner is an unrealistic option. Alternatively, ride-hailing services such as Uber or Lyft can help you save compared to traditional car ownership (particularly for those without daily car needs).

Healthcare

Healthcare—which includes health insurance, medical services, supplies, and drugs—ranks third on the “biggest expenses” list for retiree households that spend an average of $8,027 annually ($669 monthly) as compared with $6,159 for the average U.S. household. These numbers represent a 6.5% increase for retiree households, with health insurance premiums comprising the bulk of this cost at 69% (a statistic that holds true regardless of age). The remainder is spent on medical services, medical supplies, and drugs.

Soon-to-be retirees should have a broad understanding of what Medicare covers (and doesn’t cover) before retiring to potentially save hundreds of dollars a year. This program consists of four parts, each one covering specific services. Under Medicare Part A and Medicare Part B—“Original Medicare”—the government pays providers directly for services received, and almost all doctors and hospitals in the United States accept this. Click here to read all about Medicare basics, also checking out our article on common Medicare mistakes.

You should also familiarize yourself with long-term care. Whether or not you need a policy, you should, at a minimum, understand what it covers and what your options are—specifically paying attention to out-of-pocket costs (if you aren’t covered) and incorporating these into your retirement plan, accordingly.

If you’re eligible, a health savings account (HSA) is sometimes a helpful tool to cover healthcare expenses during retirement.

Finally, preventive care such as engaging in consistent exercise and healthy eating practices is another way to potentially save money on healthcare costs: especially prescription drugs. According to various sources (e.g., WebMD), ~30 minutes of daily activity that gets your heart going and blood pumping (such as a brisk walk) can benefit you greatly: helping to lower your blood pressure, preserve bone, muscle, and joint health, ease symptoms of depression or anxiety, reduce your risk of heart disease, and better manage chronic conditions such as diabetes and arthritis.

Food

Switching gears now to food, this category encompasses both groceries purchased for home consumption and dining out. Retiree households spend an average of $7,714 annually (about $643 per month) on food, while the average U.S. household spends $9,985 each year (approximately $832 monthly). For the former, these expenditures break down to an average of $4,973 for food consumed at home and $2,741 for dining out: representing a year-over-year increase of 5.6%.

Thankfully, you can employ various tactics to save money on groceries including buying in bulk (Costco, BJ’s, and Sam’s Club memberships fit the bill here) and switching from name brands to store brands. Additional ways to cut food costs include clipping coupons, making and sticking to shopping lists made in advance, frequenting stores that offer senior citizen discounts, and using a credit card (or app) that offers a strong cash back or points accumulation program for grocery purchases. While dining out less frequently is certainly an option to help curb food expenses as well, you’ll need to strike a balance here—especially if you head to restaurants with others as a social activity. After all, relationships are one critical factor needed for a happy retirement.

Utilities

The fifth-largest expense for retiree households is utilities including costs for gas, electricity, water, phone, and internet services. On average, retiree households spend about $4,307 annually (roughly $359 per month), which is slightly less than the $4,625 all households shell out for these services. In 2022, retiree household utility costs saw a year-over-year increase of 1.7%. Several ways to reduce utility bills include installing programmable thermostats, using LED light bulbs, replacing outdated appliances, and sealing air leaks around doors and windows.

Entertainment

The average retiree household spends $2,898 a year (about $242 a month) on entertainment—covering a wide range of goods and services including fees and admissions for events, country club memberships, television, radio, and sound equipment, pet toys, and veterinary services. It also includes equipment such as indoor exercise gear and athletic shoes. In comparison, the average consumer household spends $3,635 per year on entertainment.

While this category encompasses a wide range of activities, many goods and services can indeed positively impact your health/happiness and strengthen your social connections. We recommend taking advantage of senior discounts, utilizing credit card perks, and shopping online strategically to save money here, and you can also maximize savings by relying on help from promo codes and websites such as retailmenot.com, couponcabin.com, and rakuten.com (please note Vision Retirement is not affiliated with any of these websites).

Why average retiree household spending numbers matter

While retirement costs naturally vary by household, the latest U.S. Bureau of Labor Statistics data shared in this article will—at the very least—provide a rough baseline of how much money you’ll need to retire and hopefully nudge you to create or review your plan for doing so.

In sum: retiree household spending

As you can see, retirement is very expensive; and the farther you are from your golden years, the more expensive this time of life will be. Take 2016, for example. Back then, average annual retiree household spending rang in at only $45,756 compared to $60,087 in 2023! If you haven’t done so already, adopt a prudent approach and meet with a CFP® professional who can help you plan and get the most out of retirement.

More specifically, you can enlist the help of our “Am I on Track” service to gain insight into how likely you are to reach your retirement goals and take actionable steps to get you back on track (if applicable). Schedule a FREE discovery call with one of our CFP® professionals to learn more.