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

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The most recent Bureau of Labor Statistics (BLS) data claims retiree households (led by someone age 65 or older) boosted their average annual spending to $52,141 in 2021: representing a 4.5% increase from just a year ago. By comparison, average spending across all U.S. households is $66,928.

This increase—to nobody’s surprise—was fueled by inflation, which was 4.7% in 2021 (per the BLS). Retiree households saw increases across all major categories, with housing expenses representing the largest increase (dollar-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

Housing expenses—which include mortgage, rent, property tax, insurance, maintenance and repair costs—increased by almost 4% or $722 a year. More specifically, the average retiree household pays an average of $18,872 per year ($1,573 per month) on housing costs: representing over 36% of their annual expenditures.

A recent Lending Tree report claims more than 10 million people ages 65 and older still carry a mortgage. Even more worrisome is that the Center for Retirement Research at Boston College estimates over 1 in 4 people age 80+ are still paying off a mortgage. As if that isn’t concerning 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: so it’s 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 before fully retiring 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 some options.

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 $7,160 annually ($597 monthly) as compared with $10,961 ($913) for the average U.S. household with respect to transportation costs. These numbers represent a 6.93% increase from the previous year for retiree households.

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 almost 80% of 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 of the best ways 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, especially if you don’t have 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 $7,030 annually ($586 monthly) as compared with $5,452 for the average U.S. household. These numbers represent a 2.61% increase for retiree households, with health insurance premiums comprising the bulk of this cost 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—also familiarizing yourself with out-of-pocket costs (if you aren’t covered) to incorporate these into your retirement plan.

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. Specifically, doing so can help lower your blood pressure, keep your bones, muscles, and joints healthy, ease symptoms of depression or anxiety, reduce your risk of heart disease, and better manage chronic conditions such as diabetes and arthritis.

Food

The food category includes items purchased to eat at home as well as dining out. Retiree households spend an average of $6,490 ($541 monthly) on food, compared to $8,289 annually ($691 monthly) for the average U.S. household. These numbers represent a 6.46% increase for retiree households.

Some tactics you can use to save money on groceries include buying in bulk at stores such as Costco, BJ’s, and Sam’s Club and switching from name brands to store brands. Additional ways to cut food costs include clipping coupons, making and sticking to shopping lists, shopping at 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, you’ll need to strike a balance—especially if you dine out 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 $3,921 annually ($327 monthly) as compared with $4,223 for all households with respect to these costs. These numbers represent a 1.69% increase for retiree households.

It is in fact possible to reduce utility bills, 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 financial advisor who can help you plan and get the most out of retirement.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.