Biggest Expenses for Retirees & How to Minimize Them! (2024 Edition)

Retirement

Jan 2

Biggest Expenses for Retirees—And How to Minimize Them! (2023 Edition)

The most recent Bureau of Labor Statistics (BLS) data claims retiree households (led by someone age 65 or older) spent $57,818 in 2022, a figure 10.9% higher than the previous year. By comparison, average spending across all U.S. households rang in at $72,967—a year-over-year increase of 9%.

This upsurge—to nobody’s surprise—was fueled by a 6.5% inflation rate in 2022 (per the BLS). Retiree households saw increases across all major categories, with housing expenses representing the largest one (dollars-wise) followed by transportation and food expenditures.

Check out this list of the largest expenses the average household encounters during retirement, along with a few tips on how to minimize the same.

Housing

While housing expenses do drop overall as you age, this decline isn’t as steep as one might expect (as BLS data suggests). For example, these expenses—which include mortgage, rent, property tax, insurance, maintenance, and repair costs—increased by almost 8% (to $20,362, or $1,697 per month) for retiree households and represented over 35% of annual expenditures in 2022. In comparison, the average U.S. household spent $24,298 on housing costs (33% of annual expenditures) during this same timeframe.

Supporting these numbers is a recent Lending Tree report claiming more than 19% of all homeowners age 65 and older (10 million people) still carry a mortgage. Even more concerning is that Boston College’s Center for Retirement Research estimates over 1 in 4 people age 80+, specifically, are still paying off a mortgage. As if that isn’t daunting enough, many American Financing survey respondents believe they may never pay off their mortgage! In contrast, 34% of those aged 65-79 (and 3% of those aged 80+) had mortgages in 1990; it’s therefore fairly obvious that Americans today have less aversion to debt than they did just a few decades ago.

Generally speaking, paying off your mortgage and building equity prior to retirement is not only a good first step but one of the smartest things you can do to keep your living expenses in check after you stop working—giving you more breathing room with respect to other costs. Alternatively, you can look into downsizing your home to completely sidestep any mortgage debt or move to a state (or country) with a lower cost of living. Click here to research a few options in this respect.

Transportation

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

The average retiree household spends $8,172 annually ($681 monthly) as compared with $12,295 ($1,025 monthly) across all households with respect to transportation costs. These numbers represent a 14% increase from the previous year for retiree households.

Rising automobile prices—due to continued supply chain shortages—didn’t help, as the average price of a new vehicle rose by 4.9% in 2022 according to Kelly Blue Book. Used vehicle prices followed a similar trend, although prices did begin to soften after a historic price spike throughout most of 2021. Gas prices also helped fuel the increase as the average retail price per gallon was $4.67 in 2022 versus $3.19 in 2021 (per a recent Bankrate.com report).

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, who spend an average of $7,540 annually ($628 monthly) as compared with $5,850 for the average U.S. household. These numbers represent over a 7% increase for retiree households, with health insurance premiums comprising the bulk of this cost (this statistic holds true regardless of age).

Soon-to-be retirees should have a broad understanding of what Medicare covers (and doesn’t cover) before retiring. Doing so can potentially save hundreds of dollars a year. Medicare consists of four parts, with each one covering specific services. Under Medicare Part A and Medicare Part B—known as “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.

You should also familiarize yourself with long-term care. Whether you need a policy or not, 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 such as WebMD, about 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 includes items purchased to eat at home as well as dining out. Retiree households spend an average of $7,306 annually ($609 monthly) on food, compared to $9,343 ($779 monthly) for the average U.S. household. More specifically, this breaks down to an average of $4,797 for food consumed at home and $2,509 for dining out among retirees—with the aggregate numbers representing a 12.6% year-over-year increase for these households.

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 retiree household expense is utilities. This category includes bills such as gas, electricity, water, phone, and Internet charges. Retiree households spend an average of $4,236 annually ($353 monthly) as compared with $4,549 for all households with respect to these costs. These numbers represent an 8% year-over-year increase for retiree households in 2022.

It is in fact possible to reduce utility bills in various ways, such as by installing programmable thermostats, using LED bulbs, replacing inefficient appliances, and sealing air leaks around doors and windows.

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 these categories will become as the years fly by. Therefore, if you haven’t already, adopt a prudent approach and meet with a CFP® professional who can help you plan and get the most out of retirement.

Want to make sure you get the most out of your retirement? Schedule a FREE Discovery call with one of our CFP® professionals.