Retirement goals — whether they include traveling or relocating to a desired area — are achievable if you can plan for the expenses that need to be covered during those years.
However, not all Americans know what to expect regarding living expenses during their retirement. They may not know how to budget for ordinary costs in retirement, like housing and transportation, or make the most out of retirement income. Here’s a look at typical retirement expenses so individuals can get a handle on how much they’re likely to spend, and how much they need to budget for retirement, and how that might inform their strategies for padding their retirement and investment accounts.
Key Points
• Annual big-ticket costs for retirees include housing, transportation, health care, food, and entertainment.
• Housing is the largest expense, with average annual costs in the tens of thousands of dollars.
• Unexpected expenses can include uncovered health care costs and home repairs, while spending may decrease on insurance, taxes, and transportation.
• Effective retirement financial management involves categorizing expenses, estimating income, and planning for unexpected costs.
• Regularly reviewing and adjusting the budget is crucial to align with changing retirement goals and financial situations.
This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.
Average Monthly Cost of Retirement Expenses
According to the Bureau of Labor Statistics’ 2023 Consumer Expenditures report, Americans age 65 and over spent $60,087 on average during 2023, while those aged 65 to 74 spent $65,149, and those 75 and over spent $53,031.
Looking at those figures by month, a retiree aged 65 and over spent just above $5,000 on average each month, while those aged 65 to 74 spent about $5,400 per month, and those 77 and over spent close to $4,400 per month.
Retirees generally spent less than the average American in 2023, which was $77,280 (or about $6,440 a month). Retirees also spent less than people nearing retirement, those aged 55 to 64, who spent an average of $83,379 that year (just under $7,000 a month).
💡 Recommended: Average Retirement Savings by Age
5 Common Retirement Expenses by Category
The typical budget for retirees needs to cover expenses for a retirement that could stretch over two or three decades. Drilling down to specific categories can help retirement savers determine benchmarks for their own budget.
1. Housing
Housing expenses, such as mortgage payments, insurance, and maintenance costs, are among the highest costs retirees face.
| Housing | ||
|---|---|---|
| 65 and older | 65-75 | 75+ |
| $21,445 | $22,216 | $20,370 |
|
Source: Bureau of Labor Statistics’ 2023 Consumer Expenditures report |
||
In 2023, Americans over the age of 65 spent an average of $21,445 on housing. Those between the ages of 65 and 74 spent an average of $22,216, and those 75 and over spent $20,370.
These expenses can vary dramatically by location and housing type. For example, housing costs are typically much higher in a coastal California community than in a real estate market in a state with relatively low property taxes, such as Wyoming, South Carolina, or Colorado. This might be a factor to consider when weighing the best states to retire in.
2. Transportation
Many retirees want an action-packed retirement full of entertainment, socializing, visiting family, and traveling the country. That means that transportation costs can be a significant factor in retirement expenses, especially early in retirement.
| Transportation | ||
|---|---|---|
| 65 and older | 65-75 | 75+ |
| $9,033 | $10,899 | $6,448 |
Americans over 65 spent an average of $9,033 on transportation during 2023, and that figure was $10,899 for those between 65 and 74. For those 75 and over, the average was $6,448.
Retirees who don’t own a car may still need to factor the cost of public transportation into their annual retirement costs. Buses, subways, and other public transportation sources cost older generations hundreds of dollars per year.
3. Healthcare
Americans’ healthcare costs — including health insurance, medical services, medical supplies, and prescription drugs — increase as they grow older. With age comes aching joints, injuries from falling, and sometimes chronic diseases like arthritis, diabetes, or Alzheimer’s. Americans spent an average of $4,976 on healthcare annually between 2016 and 2020, but this is one area where retirees spend more than their younger peers.
| Health Care | ||
|---|---|---|
| 65 and older | 65-75 | 75+ |
| $8,027 | $7,942 | $8,145 |
Americans’ health care costs — including health insurance, medical services, medical supplies, and prescription drugs — increase as they grow older. With age comes aching joints, injuries from falling, and sometimes chronic diseases like arthritis, diabetes, or Alzheimer’s.
Americans over 65 spent a tad more than $8,000 annually, on average, on health care during 2023. Those between 65 and 74 spent an average of $7,942, and those 75 and over spent $8,145.
Costs vary from person to person depending on their genetics, injuries, and lifestyle choices. For example, if heart disease runs in the family or you are a smoker, you may want to save extra for retirement health care costs. If you have a high deductible health insurance plan, consider saving with a health savings account (HSA), which offers tax-advantaged savings to cover health care costs.
4. Food
| Transportation | ||
|---|---|---|
| 65 and older | 65-75 | 75+ |
| $7,714 | $8,566 | $6,508 |
When it comes to food expenses, Americans spent $7,714, on average, for those 65 and older, $8,566 for those between 65 and 74, and $6,508 for those 75 and over in 2023.
An individual’s food costs will vary depending on their diet and habits. For example, people who buy organic vegetables will likely spend more on produce than people who don’t. There’s also a good chance that eating at home more frequently will cost less than eating out five times per week.
5. Entertainment
Having fun isn’t just for the young. In 2023, Americans over age 65 spent an average of $2,898 annually on entertainment, which could include fees and admissions to places like museums, theater performances, and movies. Entertainment expenses also include hobbies and pet costs. Those between 65 and 74 spent an average of $3,447, and those 75 and over spent $2,131.
| Entertainment | ||
|---|---|---|
| 65 and older | 65-75 | 75+ |
| $2,898 | $3,447 | $2,131 |
What Is the Most Costly Retirement Expense?
Of all of the expenses in retirement, the most expensive is generally housing. While of course exact retirement costs will vary from individual to individual depending on their situation, the average cost of housing even far exceeds costs like health care.
There are steps retirees can take to potentially reduce this expense though. For instance, they may aim to pay off their mortgage before they retire. Or, they could consider moving to a less costly state with lower taxes.
What Are Some Unexpected Retirement Expenses?
Even a well-laid retirement plan can leave someone open to surprise. Some unexpected retirement expenses that retirees might want to factor into their retirement planning include:
• Uncovered health care costs: Health care might not cover anything, and to get total coverage, it might be necessary to get multiple plans under Medicare. However, it’s important to weigh the cost of that over any out-of-pocket costs. Of course, it’s hard to predict the future and because of that, it can be challenging to get the math just right.
• Long-term care: This retirement expense can be steep, and the costs involved continue to rise. Especially for retirees who don’t have family to turn to for assistance, this can constitute a significant portion of a retirement budget. In-home care aids may cost tens of thousands of dollars per year, and a private room in a nursing home facility could easily run more than $100,000 per year.
• Unanticipated housing costs: Retirees’ budgets might also get thrown off by housing costs they didn’t factor into their calculations. For instance, while a retiree may have noted the cost of their monthly mortgage payments, they may not have taken into account potential home repairs and maintenance, or needed additions, like a wheelchair-accessible ramp.
What Will You Spend Less on in Retirement?
We’ve talked a lot about the costs of retirement, but there are some areas where you’ll spend less in this stage of life. One place you’ll shell out less is on insurance (due to Medicare) and taxes (less income to be taxed) — though that’ll depend on each individual’s specific situation.
Other areas where costs might be lower in retirement include on pets and pet supplies; alcohol and tobacco; clothing; and, if you’re giving up your rush-hour commute, transportation.
5 Steps to Set Up a Retirement Budget
Once you have an idea of potential retirement expenses, you can start to save and comprehensively budget for them. Since every retirement looks different, there’s no average retirement budget — a good monthly retirement income for a couple will be different than for a single person. Nonetheless, these are the steps to create a budget that may work for you.
Step 1. Contribute to a Retirement Account
You may already have retirement savings in your company-sponsored 401(k) or a similar retirement plan. But those who don’t have access to a 401(k) or want to increase their savings can also save in an individual retirement account like a Traditional IRA or Roth IRA. These accounts can provide tax-advantaged ways to start retirement with adequate savings to build a budget.
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Step 2: Make a List of Expected Monthly Expenses
Most expenses can fit into one of three categories: fixed, variable, and one-time. Fixed expenses are payments that occur regularly and stay the same from month to month, like mortgage/rent payments, property taxes, and car payments.
Variable expenses change from month to month, depending on personal usage and price fluctuations. Standard variable costs include utility bills and groceries. Likewise, any entertainment expenses, medical expenses, pet care, and personal care expenses may be variable.
One-time or non-recurring expenses are costs that don’t occur regularly. These might include a new roof, a vacation, or a wedding. You may want to set aside money in an emergency fund for unexpected expenses (like that new roof) and have other funds earmarked for non-essential, one-time expenses (like a wedding or vacation).
To get an idea of your various expenses, gather payment information from bank statements, credit card statements, receipts, and bills. Take a look at what you spend now, then deduct expenses you won’t have at retirement (perhaps you’ll eliminate a car payment or pay off your mortgage). Then you can tally what’s left to get an estimate of your projected expenses and build a line-item budget.
Step 3: Estimate Retirement Income
To get a sense of your potential retirement income, look at projected monthly withdrawals from Social Security, retirement accounts, pensions, real estate investments (like a rental property), and any savings or part-time income. Total them up to figure out what your monthly income will be.
Step 4: Compare Expected Expenses to Expected Income
Ideally, your expected income will be larger than your projected expenses. If this is not the case, you can remedy this issue by reducing costs or increasing income.
To reduce expenses, you may consider downsizing your home or going from owning two cars to one. You may also consider streamlining entertainment expenses as a better way to cut costs.
To increase income, you may consider taking on a part-time job when you retire or look to passive income sources to boost the money that you have to spend during retirement.
Step 5: Figure Out When You Can Retire
Once you know how much money you may need in retirement and how long you’ll need to save to get there, you can plan a realistic timeline for when you can retire.
Keep in mind that the plan will likely change over time as you get closer to retirement, depending on how much you’re able to save and how your retirement goals change. Along the way, it could be necessary to boost your retirement savings if you decide you want to retire sooner than later, or you find you’re not quite on-track for your planned age.
The Takeaway
Budgeting for retirement can feel overwhelming, but taking it step by step allows you to create a plan for a retirement you’ll enjoy. It’s helpful to know the average monthly costs and to know in which major categories retirees regularly spend. You might be surprised by where you need to budget more, or where costs might be lower than expected.
Ready to start saving to cover your retirement expenses? Consider an investment account with SoFi Invest®. Investors can trade stocks, exchange-traded funds, and even fractional shares. SoFi members also have access to SoFi Financial Planners, who can provide personalized insights and financial advice so members can make the most of their retirement savings.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
What are common expenses in retirement?
Common expenses in retirement include housing, health care, transportation, food, and entertainment. Of course, where you spend — and how much you spend in each category — will vary from retiree to retiree.
What is a reasonable retirement budget?
This depends on a person’s anticipated expenses and the lifestyle they’d like to lead in retirement. That said, the average American over the age of 65 spent just over $60,000 during 2023.
Which is the biggest expense for most retirees?
The largest cost in retirement is generally housing. In 2023, Americans over the age of 65 spent an average of $21,445 on housing.
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