Several Ways Spending Changes in Retirement
People tend to spend less money in retirement than they did while they were working. According to a recent Employee Benefit Research Institute (EBRI) analysis of Health and Retirement Study, retired households spend a median of $31,365 annually. The reason for this being, retirees are able to eliminate work-related costs and they no longer have to pay FICA taxes or save for retirement. Here are some ways that spending changes during retirement:
Housing: Housing is the single largest expense for both workers and retirees. Downsizing to a smaller house or condo, or moving to a cheaper part of the country can help cut your housing expenses in retirement.
Healthcare: Health-related expenses increase steadily and significantly with age. As health declines, you’ll need more care which leads to an increase in expenses.
Transportation: Transportation costs drop significantly because you no longer need to commute to work. Often, couples who previously needed two cars can get by with one.
Food and clothing: People tend to spend the same amount on food and clothing in retirement as they did while working. However, there is an opportunity to save money if you trade in your suits for jeans and eat more meals at home.
Gifts and donations: Many retirees spend more on gifts for their grandchildren and trips to visit relatives. They also tend to give more in donations as many think they don’t need the money anymore.
Entertainment: Since retirees enjoy a lot of free time, they tend to start traveling or take up expensive hobbies. Newly retired individuals spend more on entertainment than those later in retirement, due to declining health.
For more information on how retirees can cut back on expenses, visit U.S. News.