Please ensure Javascript is enabled for purposes of website accessibility

How Your Spending Is Likely to Change as a Retiree

By Christy Bieber – Jun 5, 2020 at 6:59AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Healthcare expenses go up; transportation costs go down.

When planning for retirement, it's important to know how much income you'll need to live on. Estimating this can be hard, though, because you aren't likely to continue spending on the same things you're buying when you're working. 

In fact, your spending habits as a retiree can change in important ways that you need to know about when setting your retirement savings goals.

To help you better understand where your money is likely to go in your later years, the Employee Benefit Research Institute (EBRI) provided some data on the changes seniors usually make to their expenditures after leaving the workforce. 

Older couple sitting on a bench at the beach.

Image source: Getty Images.

Spending changes you'll probably make in your later years

It's long been accepted wisdom that spending tends to fall in retirement, and EBRI data backed that up. While average spending among pre-retirees ages 50 to 64 was about $54,500 in 2017, spending during that same year among early retirees ages 65 to 74 was around $50,400. And spending falls even further the older you get, with retirees age 75 and older spending an average of just $39,500 annually. 

What you're spending on is also likely to change, although not as much as you might think. Housing spending stayed pretty stable, for example, accounting for 46% of expenditures among pre-retirees and late retirees but dropping to 45% for early retirees. And spending on food also didn't change, with average spending among each age group adding up to about 11%. 

Unsurprisingly, healthcare accounted for a bigger portion of spending as people aged. While pre-retirees devoted about 8% of their money to cover medical costs, healthcare accounted for 10% of household spending among retirees between the ages of 65 and 74, and 11% of spending among those 75 and older. Unfortunately, when healthcare spending costs increase, you don't usually have a choice (and they can be substantial)

And while transportation costs fell from 14% before retirement to 12% in early retirement to 10% in late retirement, travel and entertainment expenditures predictably went up and then down. Pre-retirees devoted 10% of their money to vacation, dining, and arts, and early retirees bumped that up to 11%. But late in retirement, spending on these leisure pursuits dropped to just 8%, likely as health issues kicked in and vacations became fewer and farther between. 

Finally, spending on clothes stayed steady, which may come as a surprise once you're no longer buying office gear. And charitable contributions and gifts stayed the same among pre-retirees and early retirees but went up after age 75, likely as older retirees began considering their legacy. 

Be prepared for your spending as a senior

As you plan for retirement, estimating your expenses is important to ensure you have enough income to live on. As you can see, many of the things you'll pay for in your later years, such as healthcare and housing, aren't optional. And spending on some of the essentials only goes up as you get older.

You don't want to risk running out of money when you need it to cover vital medical care late in retirement, so having a big-enough nest egg is key to ensuring your needs are met for the rest of your life. Saving and investing throughout your career and budgeting carefully as a senior are the best ways to make sure you have enough. 

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.