How Much the Average Retiree Saves (or Spends) in Their First Year of Retirement

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The years leading up to retirement can be tense. The prospect of no more paychecks and living off savings makes many soon-to-be retirees wonder what they can safely spend in that first year.

According to Nick Hamilton, national manager of Alliant Retirement and Investment Services, that anxiety is normal. 

“It’s this massive year of transition,” he said. “You stop getting W-2 income, you stop funding accounts, and for the first time, you’re taking money out. Most people really just want to know: Am I going to be okay?”

The truth is, that first year in retirement is often the most expensive. While the 2024 Consumer Expenditure Survey (CES) estimates retirees age 65 and over spend an average of about $60,000 each year, Hamilton notes that number can be far higher in the first year, with many retirees splurging on bucket-list items or paying more upfront to be comfortably set up for old age.

“In that first year, retirees might spend 10% of their liquid assets, versus the 4% that is typical throughout the remainder of their retirement,” Hamilton said.

Here are some of the biggest expenses — and savings — retirees can expect in year one.

Biggest Savings

• Work expenses: Hamilton said he sees costs like commuting, tolls, parking, lunches out, and wardrobe “shrink to almost nothing” in the first year of retirement. The CES backs this up: Pre-retirees (ages 55 to 64) spend nearly $14,500 per year on transportation — close to double the $9,000 spent by those 65 and older.
• Retirement contributions and payroll deductions: While retirees no longer bring in a paycheck, they also no longer make 401(k) contributions. “That’s 7[% to] 10% of their pre-retirement income that goes back in their pocket,” said Hamilton. The CES data reflects this shift, with 55 to 64 households spending more than $11,000 annually on personal insurance and pensions (including retirement contributions) compared to just $3,300 for retirees 65 and up.

Biggest Expenditures

• Debt: Hamilton advises his clients to pay off debt before leaving the workforce. “We don’t want anyone retiring with debt,” he said. Still, many enter retirement carrying balances. According to Experian’s 2025 Consumer Debt Study, baby boomers hold an average of $18,474 in debt — an expense many aim to clear in that first year.
• Relocation costs: Another major expense comes from downsizing or relocating. “For many retirees, their kids are fully grown, so they no longer need a five-bedroom house and all the upkeep that takes,” Hamilton said. While a smaller home or a move closer to family may reduce long-term costs, upfront outlays — repairs, closing costs, moving expenses, and new furnishings — can make year one more expensive than expected.
• Vacations and bucket-list items: Hamilton often sees retirees celebrate milestones with a “blowout” trip. “There’s almost always a big anniversary vacation or a bucket-list journey,” he said. While these are meaningful, they can quickly add tens of thousands to year-one spending if not planned for.
• Healthcare: Medical costs typically rise with age. In 2023, households 65 and older spent more than $8,000 annually on healthcare compared to $7,100 for those under 65. Many retirees also get hit with Medicare’s Income-Related Monthly Adjustment Amount (IRMAA), which can increase premiums for Part B and Part D if income is above certain thresholds–a surprise Hamilton says “less than 10% of people walking in the door know about.”

The first year of retirement is rarely the cheapest — often, it’s the most expensive. Planning for an upfront spending spike — and then intentionally scaling back — is what keeps Hamilton’s clients from running into trouble. As he puts it: “We can usually recover from that first-year bump. The challenge is helping retirees dial back to their long-term plan once they’ve had a taste of spending more.”

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