While retirement lifestyles are often promoted as being an endless round of holidays, cruises, golf, and relaxation, recent data from the US Bureau of Labor Statistics (BLS) has revealed where retirees actually spend most of their income.
The data, reported by Yahoo Finance, suggests that, on average, retiree households spend $4,345 each month. Though younger retirees typically spend more than older retirees.
Those aged between 65 and 74 had average monthly expenditure of $4,870, and retirees aged 75 and above spent an average of $3,813 – a difference of more than $1,000.
This is not a huge surprise, as younger retirees typically spend more on travel, home improvements, dining out with friends, or hobbies.
As your energy begins to decline, so too will your level of activity. While you're likely to remain busy, you may be less inclined to take long-haul trips, instead finding that you’re happy to spend time at home or with family and friends.
Read on to find out the top five areas where most of your income is likely to be spent when you retire.
Top 5 areas 81% of retiree income is spent
According to the latest research from the BLS, 81% of a retiree’s income is typically spent on the following five areas. All figures are based on average annual and monthly expenditures of US retirees.
1. Housing
Housing is the most substantial expense for retirees. This is true regardless of whether you own your home or rent.
• Annual cost: $11,186
If you own your home, you’ll need to cover property taxes, insurance premiums, maintenance, and potential repairs. If you rent your home, you’ll have to pay a significant portion of your income to cover the monthly rent.
In retirement, you may decide to downsize to a smaller property or move to a retirement community. Alternatively, you may want to remain in your home and make modifications so you can continue to live independently for longer.
Read more: Thinking of moving to a retirement living community? Key benefits and drawbacks
2. Transport
Transport costs can vary greatly depending on whether you own a car or rely on public transport. The BLS research revealed that, on average, retirees in the US spent:
• Annual cost: $8,065
• Monthly cost: $650
If you own a car, you'll need to cover the cost of fuel, insurance, repairs and maintenance. Meanwhile, depending on where in the world you live, public transport may mean you need to buy monthly passes or regular fares to get around.
3. Health care
Healthcare takes a significant chunk of US retirees' income.
• Annual cost: $7,505
• Monthly cost: $600
Even taking Medicare cover into account, out-of-pocket costs for medications, specialist visits, dental care, and long-term care can quickly add up.
When it comes to healthcare costs, if you're a retiree in the US, you may find you need to budget for:
• Higher health insurance premiums
• Deductibles
• Copayments
• Unexpected medical expenses.
If you have a chronic condition or require regular medical treatment, you could face even higher costs.
Remember, the BLS data is based on American retirees. The cost of healthcare for you will likely differ and depend on where you live.
No matter where you live, taking measures to look after your health could help to minimise the chance of suffering ill health.
Read more: How to boost your fitness after 60
4. Food
Food is another big expense for retirees.
• Annual cost: $4,938
• Monthly cost: $411
The research also noted that retirees spend $2,412 a year dining out.
Of course, your food budget in retirement may differ according to dietary preferences, health conditions, and your particular dining habits. For example, if you enjoy cooking or prefer to eat fresh, in-season fruits and vegetables, you may spend less than someone who enjoys convenience foods, regular takeouts, or going out to dine.
5. Entertainment
When you retire, you'll have a lot more free time to enjoy yourself. So, it’s little surprise that entertainment has a place on this list.
• Annual cost: $2,589 annually
• Monthly cost: $215
How much of your budget is dedicated to entertainment will depend on your overall level of disposable income and preferred lifestyle choices. Such costs might include travel, dining out, theatre trips, or attending sporting events or concerts.
That said, it's also relatively easy to entertain yourself in retirement without having to spend a lot of money. Indeed, you may find that you're perfectly happy to spend quality time with friends and family, reading, attending classes – like those provided by u3a – gardening, or similar inexpensive hobbies.
We can help you plan your retirement budget
With extensive experience in advising clients about retirement planning, we’re here to support you in your transition from work to retirement.
We’ll assess your assets and the steps you’re currently taking. We’ll also take the time to understand your priorities and what your dream retirement looks like.
We can then help you calculate how much you need to afford the retirement you want and use cashflow modelling to simulate your future finances.
Get in touch
If you’d like help to create a financial plan to structure a tax-efficient and sustainable income in retirement, please get in touch.
Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
