What are a Retiree's Largest Expenses?

Although everyone’s finances are different, expenses in retirement are top-of-mind for all as the time draws near. From my perspective, healthcare costs seem to be a big concern for those on the cusp of retirement, with few realizing taxes will be one of their biggest expenses as well.

The Bureau of Labor Statistics recently released their 2016 Consumer Expenditure Survey. The survey provides data on income and expenses for many demographics, but pre-retirees can glean some insight by considering the results of this survey since it includes a section on annual expenditures for those age 65 and older.

Following are the results:

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Source: Bureau of Labor Statistics, Consumer Expenditure Survey 2016.

Again, spending is very personal and will look differently for everyone, but this chart can highlight how important it is to try to have your mortgage paid off before you retire. Reducing your housing costs as much as possible will mean more money can be redirected to other categories.

I also find it interesting that transportation is the second largest expense in retirement. However, cars must be replaced periodically, so transportation expenses can be high whether you pay cash and take the hit at once or use a car loan and pay for the new vehicle over time.

As you can see, healthcare, food and taxes round out the top five expenses for the average 65+ year old. In fact, the top five expenditures account for 77% of a retiree’s spending.

As you prepare for retirement, be sure to take a hard look at your housing, transportation, healthcare, and food costs and project your tax bill based on your taxable retirement income. Planning these expenses in advance can help eliminate surprises and keep your expenses in line with your income.

- Juli Erhart-Graves, CFP®, Worley Erhart-Graves Financial Advisors