After you retire, you will probably spend less money on certain items, such as clothing and electronics, and more on domestic help, long-term care insurance, and/or charitable giving. Every household budget is unique. Spending is an expression of preferences, needs, and resources. We do, however, have ample data to indicate where retirees are putting their dollars. Although inflation can cause deviations, longer-term spending patterns tend to follow standard paths.
Many of the numbers below are taken from 2022 and 2023 statistics and surveys, but over time, still provide a reasonable sense of retirement outlays.
The biggest retirement budget busters
It is not surprising that retired households spend less on average than non-retired households in the U.S. According to the Bureau of Labor Statistics, households led by someone 65 or older spent an average of $57,818 in 2022, versus all others, which spent an average of $72,967 that same year.
Looking across the spectrum of expenses for which retirees fork over money, three main categories continue to dominate: housing, transportation, and food.
First, there is housing, which consumes 35% of seniors’ expenses and involves multiple items. Homeowners pay hefty bills for their mortgages. Among those 65 and older, 19% are still carrying mortgages that are not fully paid off. Notably, one in four of the 80-plus age bracket is also still paying mortgage costs. Renters, of course, are spared that particular burden. Snowbirds, in reverse, might actually earn money by renting out their homes in winter while they are away. Those who own real estate also must cover property taxes, insurance, maintenance, and repairs. So the grand total for housing-related expenses in 2022 came to an average of $20,362 per household. Add in utilities, such as gas, electricity, water, phone, and internet, for an additional $4,236.
Transportation is the second consideration. Retirees still must get from point A to point B, even if commuting to and from an office may no longer be necessary. As long as they remain mobile, retirees still must address transportation costs, which likely include a vehicle, gas, insurance, parking, maintenance, and repair bills. Many seniors will have abandoned the excitement and stresses of metropolitan life to move to suburban or rural areas. For them, a car is almost indispensable. In recent years, since the pandemic, auto costs have soared, along with inflation and supply chain shortages, although some of those prices have since retreated. Meanwhile, retirees aiming to economize on transportation might find ride services like Uber and Lyft sometimes save them money.
Food comes in third since everybody needs to eat. Seniors have been averaging $7,306 per year on food: $4,797 when cooking at home and $2,509 when eating out. To cut back, many try buying in bulk, using cashback cards, or shopping at senior discount stores.
Don’t forget the frills
Retirees should still be able to enjoy a few luxuries. A comprehensive budget should also consider:
- Subscriptions (gym memberships, magazines, online services, meal kits)
- Entertainment (more free time leads to more spending)
- Charity (items or volunteer time, rather than money, can be donated)
- Gifts
- Travel (retirees tend to spend more on travel in their late sixties and then start slowing down in their seventies)
Don’t forget inflation
The generation that came of age in the 1970s and ’80s still dreads double-digit inflation. However, it is conceivable that the government may also fudge some numbers to keep down its own Social Security costs.
Retirees enjoyed a boost of 8.7% in their Social Security benefits in 2023. The cost-of-living adjustment is tied to the change in price for a basket of consumer goods, calculated normally during the third quarter. The Congressional Budget Office is projecting a skimpier rise of 3.2% for 2024. Much can shift, though, during a year’s first eight months of data. Although inflation peaked at 9.1% in June 2022, shelter, food, electricity, and airline fares continue to rise.
According to a recent Atticus survey, 62% of seniors fear that the 2024 COLA will not suffice to support their lifestyles. In addition, an increasing number of Social Security recipients will owe taxes on their benefits for the first time, after their income crosses $25,000.
To make ends meet, analyze your spending patterns and budgets over the past six months and ask your planning professional for support. Contact our office to ensure your estate plan is up to date and safeguard your nest egg for retirement.
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