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Retirement: You’d be spending less on these once you retire

Many retirement planning guides suggest that retirees will need 80% of their pre-retirement income to sustain their lifestyle, with some experts urging even higher savings to avoid running out of money. However, this widely accepted benchmark may not apply to everyone and can lead to unnecessary stress.

In reality, consumer spending typically decreases significantly with age. Understanding how your expenses will shift in retirement can help you set more realistic savings goals and ensure happy retirement.

Here are some common expenses that usually reduce with retirement:

Transportation: Less Commuting, Fewer Costs

Retirement often eliminates the daily commute, significantly cutting transportation expenses. Gas, vehicle maintenance, registration fees, and public transit costs all decrease. On average, adults under 65 spend $13,865 annually on transportation, while those 65 and older spend just $8,172. For households, it is about 16% of their total expenditure. This figure falls exponentially since once retired, you’d be traveling less and saving fuel money. Plus, there might be some cheaper travel passes for retired individuals.

Housing: A Gradual Decline

Housing costs generally decrease as retirees pay off mortgages and downsize. While some expenses, like maintenance and property taxes, remain, the average annual housing expense drops from $24,140 for those aged 55-64 to $19,317 for those 75 and older. Reports show that nearly 70% of homeowners over 75 have paid off their mortgages, whereas only a third in the 55-64 group have. Plus, this cost also decreases as some people move to smaller homes after they retire.

Food: Smarter Spending Habits

Retirees tend to spend less on food, averaging $7,306 annually compared to $10,088 for younger adults. With more time to plan meals and shop strategically, retirees often cut costs while still enjoying dining out occasionally. There are several reasons why this happens, including having more time for food preparation and the need to consume a special diet. This is category that has been increasing almost every year, mainly due to inflation. On average, American households pay $832 per month on food in 2023 and $9,985 over the full year.

Clothing: A Relaxed Wardrobe

Without the need for professional attire, spending on clothing decreases. This is a major expense for most adults with consumers spending an average of $1,945 on apparel and apparel services per year based on a 2022 report. This, however, goes down to about $1,130 for people above 65. Although retirees may update casual wardrobes, overall costs decline. This decreases further with age, as per this 2016 report, which showed how clothing expenses went from $1,789 for the 55–64 age group to $683 for the 75-and-older group.

Entertainment: Fewer Extravagances

While retirees have more free time, entertainment spending decreases with age. Older adults spend an average of $2,672 per year on entertainment, which is less than the $3,568 spent by adults under 65. Many retirees opt for affordable or at-home activities, though streaming service costs can add up. However, Boomers have the least amount of subscriptions, with almost nine in ten (87%) having 5 or fewer. In comparison, Gen Z have about 10 subscriptions and Millennials have up to 11.

Taxes: Significant Savings

Tax obligations lighten considerably in retirement. Many states offer property tax breaks or exemptions on retirement income. Retirees spend $3,466 annually on personal taxes, compared to $13,605 for working households. You must, however, be smart if you want to save taxes in retirement. Here’s an interesting video on the topic:

Education: Minimal Costs

Education expenses largely vanish in retirement, with households averaging just $373 annually. Additionally, many institutions offer discounted or free courses for seniors, making lifelong learning more affordable. This trend is changing now with people wanting to gain new skills post retirement to be able to work, yet this expense remains negligible.

Alcohol and Tobacco: A Healthier Lifestyle

With reduced stress and healthier habits, retirees often spend less on alcohol and tobacco. Tobacco costs drop nearly 50%, while spending on alcohol decreases from $627 to $469 annually. Repots show that the average retired household spends $261 per year on tobacco, while the average working household spends $413. However, retirement can also bring an increased risk of alcohol abuse. Studies show that the percentage of heavy drinkers increases by almost 5% within a year of retiring

Pets: Lower Costs for Companionship

Retired households spend less on pets, averaging $712 annually compared to $980 for working families. With fewer dependents at home, pet-related expenses naturally decline.

By understanding these shifts, retirees can better estimate their future expenses and set achievable savings targets, easing financial anxiety and paving the way for a more secure and enjoyable retirement.

Check our free Retirement Calculator to better plan your retirement.

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