6 Ways Spending Changes in Retirement
Most people spend less money in retirement. Here's what they cut from their budget
Most people spend less money in retirement than they did while they were working. Retired households spend a median of
Retirees have lower expenses largely because they are able to eliminate work-related costs like commuting and office attire, and they no longer have to pay FICA taxes or save for retirement. But retirees often spend more on healthcare than people who are still in the workforce, especially if they develop a significant health problem that requires long-term care. Here's a look at the major ways costs change in retirement:
Housing is the single largest expense for both workers and retirees. Home-related expenses represent 47 percent of all costs for people ages 50 to 64, which declines to 44 percent between ages 65 and 74. "People probably finish paying off their mortgages, so they don't have to pay the mortgage anymore," says
Health-related expenses are the only major cost that increases steadily and significantly with age. Health costs represent about 9 percent of most people's budget between ages 50 and 64. This number doubles to 18 percent after age 85. "As their health declines, it means more care and the cost of healthcare itself is increasing. The same amount of care costs more now," says Banerjee. "If you have to go into a nursing home or enter into some form of long-term care, that is going to significantly increase your expenses."
You no longer need to commute to work in retirement. Transportation costs drop from 14 percent of the budget of 50- to 64-year-olds to 8 percent for those 85 and older. Couples who previously needed two cars can often get by with one.
Food and clothing.
People tend to spend the same share of their income on food (12 percent) and clothing (3 percent) in retirement as they did while working. But there's certainly room to make cuts if you trade in your suits for jeans and eat more of your meals at home.
Gifts and donations.
When grandchildren are born, many retirees spend more on gifts and trips to see them. Some retirees also plan bequests to relatives or charities. "The budget shares spent on donations and gifts go up a lot with age," says
Retirees enjoy eight or more extra hours of free time each day than they did while working. Some retirees immediately begin traveling or take up expensive new hobbies. "Some people spend a lot of money because they have these pent-up projects around the house to address or they want to do traveling that they never had time to do," says
The budget share spent on entertainment generally remains the same in the early stages of retirement, then tapers off in the later years, EBRI found. People ages 65 to 74 spent 9 percent of their budget on entertainment in 2009, about the same as older workers between the ages of 50 to 64. But these costs decline later in retirement. "If you are not in good health, then you are not able to do those things and that brings your costs down," says Banerjee.
How retirees choose to fill their newfound hours of leisure time can make a big difference in their retirement security. "They can either spend this time on activities around the house that reduce overall spending, such as doing more home repairs yourself, preparing more meals at home, doing your own cleaning rather than getting someone else to do the cleaning, and going out and looking for deals and smart spending opportunities, or they could spend this time traveling or entertaining -- and that takes money," says Rohwedder. "It very much depends on what people do with their newly gained time."
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Personal Finance - 6 Ways Spending Changes in Retirement
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