Many people have fantasies about what their golden years will be like. Some people dream of traveling the world in their golden years, while others desire to spoil their grandchildren. These aspirations are feasible as long as retirees have saved enough money throughout their working years to cover the costs.
Unfortunately, not all Americans are aware of what to expect in terms of living costs during retirement. They might need to learn how to plan their finances to cover routine expenses in retirement, such as housing and transportation, or to maximize their retirement income.
So that people may get a sense of how much they’re likely to spend and how much they need to budget for retirement, let’s look at some common retirement expenses.
Did You Know?
Gen X (those born between 1965 and 1980) spent the most in 2021, with an average yearly expenditure of $83,357.World Economic Forum
Americans 65 and older paid $1,406.68 per month, or $16,880 annually, on housing-related expenses from 2016 to 2020.
These costs can vary greatly depending on the location and type of housing. Housing expenses, for instance, are frequently substantially higher in coastal California than in a state with comparatively low property taxes, like Wyoming, South Carolina, or Colorado.
As Americans age, their healthcare expenses rise, including those for prescription medications, medical services, and health insurance. Aging brings about painful joints, fractures from falls, and occasionally chronic conditions like Alzheimer’s, diabetes, or arthritis. Between 2016 and 2020, Americans spent $4,976 on healthcare per year; however, this is one area where seniors spend more than their younger counterparts.
From 2016 to 2020, those over 65 spent an average of $6,583 a year, or $548.62 monthly, on healthcare. Individual costs differ based on genetics, injuries, and lifestyle decisions. For instance, you can save more money for retirement healthcare bills if you smoke or have a family history of heart disease.
If you have a high deductible health insurance plan, consider saving with a health savings account (HSA), which offers tax-advantaged savings to cover healthcare costs.
From 2016 to 2020, households headed by a person 65 or older spent $6,207 yearly, or $517.23 per month, on food. Over 75s spent $5,274, while those in the 65 to 74 age range spent $6,864. These food costs include purchases of groceries and restaurant meals.
People will spend different amounts on food depending on their eating habits and diet. For instance, consumers who purchase organic vegetables are likely to spend more on produce overall. Additionally, there’s a strong probability that cooking at home more often will be less expensive than dining out five times each week.
Many retirees desire an active retirement filled with entertainment, socializing, family visits, and cross-country travel. Therefore, transportation charges may contribute significantly to retirement expenses, particularly for early retirement.
Between 2016 and 2020, Americans paid $11,910 per year to get from one place to another, whereas pensioners spent a little less. An average of $7,062 or $588.50 per month was spent on transportation by people over 65. Ages 65 to 74 spent $8,497 annually, while aged 75 and older spent $5,073 annually. These figures include everything from purchasing a car to filling up the petrol tank and may be considerably higher for people who travel frequently.
Public transportation expenses may need to be included in retirees’ annual retirement expenses even if they don’t own a car. The annual cost of public transportation for older generations is $526.80, including buses, subways, and other forms.
Fun isn’t just for kids anymore. People over 65 paid an average of $2,527 per year ($210.55 per month) fees and admissions for museums, plays, and movies from 2016 to 2020. Hobbies and pet fees are included in entertainment expenses.
The 5 Biggest Expenses For Senior Americans
According to a Consumer Expenditure Survey by the Bureau of Labor Statistics, here’s a look into which common expenses for older people in America take up most of their income or retirement money.
Ways To Reduce Retirement Expenses
Since aging can be an expensive stage in one’s life, here are a few ways to minimize expenses in retirement:
- Before you retire, pay off your mortgage.
- Think about relocating to a state with reduced taxes and costs (or country).
- Share rides instead of buying two cars, or pay off your car and insurance so that you only need to buy petrol to reduce your transportation expenditures.
- Be thrifty with your food budget.
- Analyze the amount you pay each month on utilities.
- Use the funds in your health savings account (HSA).
- Spend less on entertainment.
It would be best to have a plan and strategy considering numerous aspects to retire properly. In addition to whether you have enough assets and are certain that you understand what retirement means, you should think about your health, income, spending, inflation, and other financial goals.
Expenses are another big factor to consider in estimating how much you will spend in retirement. When you plan for retirement, it’s important to consider all the possible expenses, even if you have enough savings.
As you prepare for a prosperous retirement, think about working with your financial advisor to create a retirement income plan that suits your needs and your desired standard of living.
To learn about resources that could help ease your financial burden from these expenses, you may also read our compilation of Financial Assistance and Resources For Seniors.