How Will My Expenses Change Between Now and Retirement?

Having a sense of your retirement expenses is essential for crafting an accurate retirement plan, but it's not always easy to figure out. Who knows what kind of medical expenses you might incur or how much you'll spend on entertainment? You don't know how your lifestyle or interests might change between now and then.

There really is no way to solve that problem, but looking at averages can give you a jumping-off point for crafting your own retirement budget. A recent Employee Benefit Research Institute (EBRI) study looked at how households with adults in three age ranges -- 50 to 64, 65 to 74, and 75 and older -- spent their money over one year. Here's what it found.

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Housing costs tend to decrease over time. Individuals in the 50 to 64 range, many of whom are likely still working, spent $25,000 on average on housing in 2017, while those 65 to 74, many of whom have likely retired, spent just $21,000. Adults 75 and older spent the least on housing, at just $18,000. This could reflect an increasing number of adults paying off their mortgages over time or possibly downsizing to a more affordable living situation in retirement. The EBRI study found that while only 40% of 2016 homeowners aged 50 to 64 did not have a mortgage, that number rises to 60% for adults aged 65 to 74 and 79% for adults 75 and older.

Interestingly, housing costs still made up about 45% of household expenditures for all age ranges. This makes sense when you consider that total household expenditures tend to drop as people age, so while individuals are spending less on housing, it still takes up a similar proportion of their smaller overall budgets.


You would think that food spending would remain roughly the same for every group because regardless of your age, you still need to eat. But the EBRI survey found that food expenditures decrease as people age. Households with adults 50 to 64 spent an average of $5,100 on food in 2017, while those with adults 75 and older spent just $3,800. Those 65 to 74 fell in the middle at $4,400.


Healthcare is the one cost that people expect to rise in retirement, but interestingly, the EBRI survey found that average healthcare expenditures remained pretty constant for each age group -- around $4,000 in 2017. But median household healthcare expenditures do rise over time, as does the percentage of average annual spending on healthcare.

When you consider that the average household size decreases as people age yet healthcare spending remains constant, this fits in with our thinking that healthcare costs rise as we age. The Center for Medicare & Medicaid Services found that adults 65 and older spent nearly three times as much as working-age adults on healthcare in 2014, and while medical inflation hurts everyone, it hits those who require the most medical care the hardest.

Some older adults might also spend more on healthcare than their working-age counterparts because Medicare doesn't cover some of the services their workplace health insurance plan provided. Things like prescription drugs, hearing aids, and dental and vision coverage aren't included in Original Medicare, so seniors must either pay for these costs out of pocket or purchase supplemental coverage, which means another monthly healthcare payment.

Making efforts to remain healthy while you're young can help keep your healthcare costs lower, but you never know when an unexpected injury might sideline you, so it's best to plan for increased healthcare spending in retirement, even if you believe you're a healthy person.


Transportation expenses also decline as people age. Adults 50 to 64 spent the most at $7,600 on average, which makes sense when you consider that those who are still working have to travel back and forth to their office every day. Adults 65 to 74 spent just $5,300 on transportation, and adults 75 and older spent a mere $3,600, on average.


Clothing expenditures decrease slightly by age but remain fairly level when you consider that household size also tends to decrease with age. Adults 50 to 64 spent about $1,400, on average, on clothing while adults 75 or older spent just $1,100. Those in the middle spent $1,300. This makes sense because clothing is a necessity, regardless of your age. 


Entertainment spending remained relatively constant for adults in the 50 to 64 and 65 to 74 age groups, with both spending about $5,400 on entertainment. If we assume that household size declines over this period, that indicates slightly increased spending on entertainment for 65- to 74-year-olds. This makes sense because new retirees have more time to devote to hobbies.

Entertainment costs declined among adults 75 and older. The EBRI survey found they spent just $3,600 on entertainment, on average. But the percentage of household expenditures on entertainment remained pretty close to the other age groups, dipping down to just 8.3% from 10.5% for 65- to 74-year-olds and 10.2% for the 50- to 64-year-olds.

Gifts and contributions

The money people spend on gifts and charitable contributions actually increases as they age. The difference is slight. Adults 50 to 64 spent just $2,900 on this while adults 65 to 74 spent $3,000, and adults 75 and older spent $3,100. But when you consider that overall expenses tend to decline with age, the proportion of income spent on giving rises significantly. 

What does this mean for you?

The above figures can give you a baseline to gauge your basic expenses in retirement -- but remember, these are just averages. If you live in an expensive city, you might have to figure in more for housing. If you plan to enjoy a quiet retirement at home, you might not need to spend as much on entertainment. Use the above figures as a starting point, but adjust them up or down based on how you envision your senior years.

Once you have your estimates, you have to consider inflation, which will drive up the cost of all living expenses over time. The inflation rate varies from year to year, but 3% per year is a safe estimate. The above figures are all in 2017 dollars, and inflation in 2018 and 2019 to date has driven up costs by approximately 4.2%, so if you're using the above estimates, add 4.2% to get your estimated costs in 2019 dollars. Then add 3% for each year between now and your retirement to estimate how much your living expenses might cost you by the time you're ready to leave the workforce.

Keep in mind that your annual expenditures will probably decrease over the course of your retirement. You might use the above figures for the 65 to 74 age group to estimate costs in the early years of your retirement and the 75 and older estimates to plan for costs later on in your retirement. Then, add the two together to figure out your total retirement expenses.

You won't need to save all this money on your own because Social Security will cover some of it and your employer may offer a pension or a 401(k) match. If you're saving for retirement, your investments are also likely to grow between now and then, which will relieve some of the savings burden on you.

So don't panic if your total retirement expenses seem like more money than you can save on your own. Just focus on getting the most accurate estimate you can first and then go from there.

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