Retirees Spend Nearly $5K a Month — Where Their Money Goes and How To Plan Accordingly
Written by
Dawn Allcot
Edited by
Rebekah Evans
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You might expect your expenses to decrease in retirement, and according to data from the Bureau of Labor Statistics, that’s true. The average American retiree spends about $55,000 each year. Compare that to adults ages 25 to 34, who spend $67,883 yearly, while those ages 35 to 44 spend $86,049 per year. Between the ages of 45 to 54, Americans spend $91,074 annually. However, the earnings for these age groups are proportionately higher, too.
The average income before taxes for U.S. retired persons was $48,780 — less than the average expenditure. In order to keep your finances balanced as a retiree as the average retiree is spending more than their income, you’ll want to consider what you’re spending on and how to manage that.
For retirees ages 65 and up, the bulk of their income goes to these four expenses below. Let’s take a closer look, along with how you can work to reduce these costs so your retirement income lasts longer or free that money up for things like traveling and hobbies.
Housing
Housing, on average, makes up about 20% of a retirees’ expenses, according to the BLS data. That’s a hefty chunk, which means reducing your housing costs will be most impactful to your overall retirement spending.
If you love your home — or have deep roots in your area — it might make sense to stay where you are. If not, then you might consider selling so you can downsize, or even move to an area with a lower cost of living. Buying or renting a smaller home in a more affordable market, or even a co-op in a senior living community, can dramatically reduce your cost of living.
Plus, you won’t have all the headaches and added expenses that come with a large house, such as emergency home repairs and maintenance.
Transportation
Transportation, including owning a car, costs $8,065 per year for retirees. Many retirees hesitate to give up the freedom that driving offers — but if you aren’t working, it might be feasible to share a car with your partner. Depending on the mass transit and walking options where you live, you could even give living car-free a shot.
As with your home, downsizing can significantly reduce your costs like insurance, gas and maintenance.
Healthcare
Even with programs like Medicare, retirees spend $7,505 in healthcare costs per year. It’s important to acknowledge that reducing these costs can be a lot more challenging than housing or transportation.
If you are currently in good health, then making healthy lifestyle choices like eating a healthy diet, avoiding alcohol and smoking, and regular exercise may reduce your risk of serious illness or injury — but if you already have an illness or condition that requires ongoing treatment, your options are a lot more limited.
Your best bet is probably evaluating your Medicare plan to see if there’s an option that will better fit your needs and budget. You might save money with Medicare Advantage, which bundles Medicare parts A, B and, typically, D. The open enrollment period to switch from regular Medicare to a Medicare Advantage plan runs from Oct. 15 to Dec. 7, according to Medicare.gov. But if you are already in a Medicare Advantage plan, you can change to another MA plan between Jan. 1 and March 31.
Food
After healthcare, food is the next largest line item on a retiree’s budget. Retirees spend an average of $7,350 on food per year. Food is obviously not something you want to cheap out on — nutrition is important at any age — but there are still ways you can save a few dollars
About one-third of that $7,350 is spent on food outside of the house, so reducing the number of meals dining out can be an easy win here. When you dine out, ask about senior specials, as sometimes these discounts aren’t advertised.
Look for easy opportunities to save on groceries as well. Many stores like Savers and Albertsons have senior discounts on certain days of the week. Do some research to find out what the stores in your area offer. You can also save money on groceries by meal planning and making a list, which will help you avoid impulse purchases. Try not to shop on an empty stomach, when you’re likely to be tempted by junk foods that are bad for your health and your wallet.
Retirement can be expensive, but you can find ways to live within your means and still enjoy life. Knowing where your money goes and actively taking steps to reduce costs are the first steps to financial peace of mind.
James Holbach contributed to the reporting for this article.
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