Expenses in retirement to consider

Many people save throughout their working years to be able to retire one day. Chances are you’ve tried to plan for everything, including money for day-to-day needs, travel, and quality time with family.

Now that you’re approaching that time, do you have enough money tucked away? Expenses during retirement may be significantly different than during your working years. Here’s a look at some expenses you can expect and how to make sure they’re covered.

How to estimate retirement expenses

Expenses in retirement typically shift as your lifestyle and habits change. You may have more free time as a retiree, and you want to have enough set aside to do all the things you’ve longed to do.

One study found that the average American will spend about $987,000 after they turn 65. Divide that by the national average life expectancy of 19.4 years in retirement, and you’ll need to have $50,876 annually, or over $4,200 a month.

Now, think about how much your income may change in relation to retirement expenses. Retirement means your income sources will shift, but that doesn’t mean you have to be unprepared for what’s to come.

For many older Americans, there’s still money coming in each month. Your own income will probably include Social Security payments. You may also receive Medicare to help cover health insurance costs. For some, reaching retirement age means relying on existing retirement accounts, such as 401(k)s and IRAs, or tapping into other savings accounts.

As you plan your budget, add up your expected income from Social Security, IRAs, pensions, and other sources and compare it against your expenses. Here’s a closer look at some typical expenses during retirement to help with your own retirement planning.

Housing

According to Harvard’s Joint Center for Housing Study, housing costs are a key factor for older Americans, especially since nearly 26% of seniors at the age of 80 still have a mortgage. Mortgage or rental payments will make up a big chunk of your overall budget. If you’ve moved into a senior living community, costs for renting can grow even further. Estimate your expected monthly payment and how it may change if you’re a few years away from paying off a mortgage.

Health Care

Health expenses during retirement increase because age often brings health complications. At retirement, your employer may no longer cover your health insurance policy. Medicare kicks in for most, but you’ll still likely have some expenses to pay. According to research from HealthView Services, a provider of health care cost projection software, the average 65-year-old couple in good health needs to have nearly $400,000 saved to pay for health care costs for the rest of their lives.

Food

You’ll likely spend less on food in retirement than you did during your working years. Federal data shows that members of older households spend about $6,600 annually on food, compared with $8,200 for younger households. However, a lot of this depends on your preferences for eating out, the type of foods you consume, and where you shop.

Travel

Do you plan to travel? Estimate how much you’ll spend each year to travel in retirement compared with during your career. You may be traveling more with extra time on your hands. Consider all types of travel including domestic and international, RVing across the country, or visiting family and friends. It may also be important to consider if you’ll pay for your children or grandchildren to travel with you, adding to the cost.

Other Bills

Other bills may include utilities (which most likely won’t change much), transportation, and fuel costs. Some expenses may decrease, such as transportation costs since you may not need to commute to and from work. Auto insurance costs may fall, too, if you’re not traveling as many miles. On average, all households spend about $10,742 on transportation costs each year. This drops to $7,492 per year in older households.

Miscellaneous

Do you plan to increase your contributions to charities? Perhaps you’ll eat out more often now that you have the time to enjoy a luxurious meal. New hobbies may change what you’re spending, too.

Financial protection in retirement and beyond

Life insurance is one cost not to overlook as you’re thinking about annual retirement expenses. You can buy term life insurance coverage from Fidelity Life for about $1 a day, and it can provide a big financial cushion later if needed.

At this point in your life, your term plan may be coming to an end. If that’s the case, it’s time to think about new options based on your goals.

  • Extend term life: Some policies may allow you to renew on an annual basis. This can be a good way to go if you just need coverage for a few more years to take care of short-term needs, like paying for your child’s college tuition.
  • Buy a new term policy: If you think you’ll need coverage for several more years – but not forever – you may be able to purchase a new term life insurance policy. Term life is often available up to age 70 and is more affordable than permanent life. It can help cover the unpaid balance on your mortgage, for example, or help with medical costs after you pass away. 
  • Final expense insurance: This policy is ideal for people over the age of 50 who want a guaranteed payout at the time of death. The coverage amounts are lower than traditional term or permanent plans, which helps to keep the premiums affordable. It can give your family the financial support they need to cover funeral expenses and other immediate costs after death.

Life changes during retirement, but that’s part of the joy. Knowing what to expect financially can help you live more fully, with fewer worries, during this special time of life.

Still have questions?

Fidelity Life is here to help. Get in touch with us or start your online quote today.


At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.

Citations — 4 sources

  1. 1. USA Today https://www.usatoday.com/story/money/2020/08/17/what-it-costs-to-retire-comfortably-in-every-state/42209705/
  1. 2. Harvard's Joint Center for Housing Study https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_Housing_Americas_Older_Adults_2019.pdf
  1. 3. HealthView Services Whitepaper https://www.prnewswire.com/news-releases/why-health-needs-to-be-part-of-retirement-planning-new-healthview-services-white-paper-300880937.html
  1. 4. MoneyTalksNews.com https://www.moneytalksnews.com/heres-the-true-cost-of-living-in-retirement-and-it-aint-cheap/