If you're like most Americans, you're worried that you're income could come up short during your retirement. Pensions are increasingly rare and Social Security isn't intended to provide all of a retiree's income, so retirees are right to be concerned about their financial security.
However, income isn't the only thing that retirees should be focusing on. Retirees should also be thinking about their spending. For that reason, I've dug into the data to learn how much the average retiree spends every year.
Spending by age
The average person's annual spending tends to increase with age and it peaks at $55,892 between the age of 45-54, according to the Bureau of Labor Statistics, or BLS.
Based on the BLS's bi-annual consumer expenditures report, spending begins dropping as we get closer to retirement and declines steadily throughout our retirement years. Overall, annual expenses totaled $41,403 for Americans over the age of 65 in 2013, the most recent year for which this data is available.
Retiree spending drops
In some ways, the typical retiree's expenses are similar to the expenses of all Americans. For example, housing is a retiree's biggest expense and the average person between the age of 65-74 spends almost as much per year on food as the average person who is between the ages of 25-34 years.
However, there are some big differences in spending, too. Although housing is the largest expense for retirees, the total amount of money spent annually on housing falls sharply in a person's golden years. While the average American adult spends $17,148 on housing every year, the typical retiree age 65 or older spends just $14,204, or 20.8% less than they were spending between the ages of 55-64.
The decline in housing expenses stems primarily from falling mortgage expenses as retirees pay off their homes. The average person 65 or older pays $1,560 per year on mortgage interest and charges, which is 52.7% less than they were spending when they were in their late 50s.
Other household expenses that drop notably in retirement include property taxes (as retirees downsize), utilities (as fewer people live in households), and furnishings.
Retiree spending tends to increase for maintenance and fuel for heat, but overall, those increases are minor relative to these other expenses.
In addition to lower housing costs, retirees also spend considerably less on items like clothing and transportation. People over 65 spend $1,022 on clothing annually, or 34.6% less than they were spending while they were working in their 50s and early 60s. Eliminating the commute to work cuts a retiree's transportation expenses by 28.7%.
Retiree spending spikes
Although overall spending in retirement drops considerably with age, spending on healthcare increases significantly.
The average person over age 65 spends 39.6% more on healthcare per year than the average person of any age. Spending increases dramatically for health insurance and prescription medicine and as a result, seniors spend 50% more than non-seniors on health insurance and 55% more than non-seniors on drugs.
Even though the average retiree's spending drops 25.9% after age 65, pre-tax income falls off by 39.1%. That's a scary revelation, but the good news is that the average person age 65 or older is still making ends meet -- albeit not by much.
Since the average person over 65 has after-tax income of $41,885, more than half of which comes from Social Security, and that's just $482 higher than they spend overall on expenses every year, it remains incredibly important for pre-retirees to plan ahead and for retirees to invest wisely and scrutinize their expenses if they hope to widen that gap.