It’s easy to assume that your expenses will drop off dramatically in retirement once you’re no longer raising children, managing a full household, or carrying work-related costs for transportation, clothing, lunches, etc. But that may not be the case for the average retiree household, according to the Bureau of Labor Statistics (BLS). In their most recent study, the BLS reports that households run by those age 65 and older spend an average of $45,756 a year. That’s roughly $3,800 a month and only about $1,000 less than the monthly average spent by all U.S. households combined.1
Below are six of the most common areas where retirees may experience a rise in spending in retirement.
- Housing remains the largest, single monthly expenditure for retirement-age households.2 Even if you have already paid off your mortgage, monthly expenses for insurance, property taxes, homeowners association and condo fees, utilities, landscaping, home cleaning services, maintenance and repairs can add up quickly and represent ongoing expenses that continue to rise over time.
- Healthcare and medical costs rank second among the highest monthly expenses for retirees.1 Based on the most recent Social Security Administration (SSA) data, the median expenditure for out-of-pocket healthcare for households age 55-64 was $2,871 a year, versus $3,803 for those age 65-74, and $3,918 for those age 75 or older.3
- Debt among older Americans is also on the rise. The average debt in families where the head of the household was age 75 or older was $36,757 in 2016, up from $30,288 in 2010, according to the most recent data compiled by the Employee Benefit Research Institute (EBRI).4 That includes mortgage, credit card, personal and student loan debt incurred by those obtaining degrees later in life.
- Travel is an area where many retirees experience an increase in discretionary spending, particularly during the early stages of retirement. According to AARP Research, Baby Boomers expected to take four to five leisure trips in 2018, spending a total of about $6,400.5
- Fitness classes, gym memberships, personal coaches, yoga retreats and other wellness-related activities have taken on greater importance for a growing number of health-conscious retirees. However, increased spending on wellness activities can be a good thing, helping to manage or delay health-related costs down the road.
- Discretionary spending rises over time 1) due to inflation, as the cost of goods and services go up, and 2) if you choose to spend more on non-essential living expenses, such as travel and entertainment or shopping. To keep discretionary spending in check, be sure to maintain a budget to track spending throughout retirement.
To learn more about managing your income needs in retirement, contact the office today to schedule time to talk.
1https://www.marketwatch.com/story/reality-check-what-the-average-retiree-spends-a-month-2018-06-05
2https://www.thestreet.com/story/14507793/1/worry-more-about-housing-costs-in-retirement-than-healthcare-costs.html
3https://www.ssa.gov/policy/docs/chartbooks/expenditures_aged/2015/exp-aged-2015.pdf (SSA Publication No. 13-11832 Released: January 2018)
4https://www.cnbc.com/2018/04/04/growing-debt-among-older-americans-threatens-retirement.html
5https://www.aarp.org/research/topics/life/info-2017/2018-travel-trends.html?CMP=RDRCT-PRI-TRVL-111717