Many retirement planning guides suggest retirees will need 80% of their pre-retirement income to make ends meet. Some experts encourage saving even more to avoid running out of money. Facing such seemingly overwhelming goals, 66% expect to retire after age 65 or do not plan to retire at all, according to the Transamerica Center for Retirement Studies.
However, that 80% rule isn’t one size fits all and could lead to undue anxiety as you plan for retirement. Consumer spending actually decreases — significantly — as you age. So to know how much you need to save for retirement, it’s important to know what your spending will look like once you retire. Consider these nine budget-line items on which you’ll likely spend less in retirement.
Data in this article is collected from the Bureau of Labor Statistics, unless otherwise indicated.
1. You’ll spend less on transportation in retirement
For many who are voluntarily signing off on their career, saying goodbye to rush-hour traffic and long commutes is a highlight of retirement. Not only will you be spending less on gas, but you’ll also be saving money on vehicle maintenance and registration (or bus and rail fare).
Adults under the age of 65 spend $13,865 each year on total transportation costs. That number drops to $8,172 for adults 65 and over.
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2. You’ll spend less on clothing in retirement
If you’re heading back to the office more these days, it’s likely you’re spending what’s needed to look sharp at your job. In retirement, no more pressed shirts or high heels, and your wallet gets a break from updating your work wardrobe. Adults under the age of 65 spend $2,244 each year on apparel, while adults 65 and older spend $1,130. Also, factor in the money you’ll save on dry cleaning (averaging as much as $1,000 a year in some metropolitan locations).
A caution though: Although household spending on apparel decreases overall in retirement, Marguerita Cheng, the chief executive officer at Blue Ocean Global Wealth, says that she sees spikes in spending from recently retired clients who feel the need to update casual wardrobes in the first few years of retirement. Remember, you only need so many golf pants.
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3. You’ll spend less on food in retirement
Even if you dream of a retirement filled with brunch dates and steak dinners (on the early bird discount, of course), chances are the total food bill will be lower. Overall, older households spend a lot less on food — $7,306 compared to $10,088 for those under the retirement age.
According to Erik Hurst and Mark Aguiar, professors from the University of Chicago and Princeton University, the logic to this is simply that retirees are more careful, price-conscious shoppers. When you’re not in a hurry at the grocery store, you’re more likely to compare prices on similar products, use coupons and spend more time planning meals for the week ahead. That’s even more important now as inflation keeps food prices elevated.
They go on to say that when you’re working, much of your dining out may be quick lunch runs or costly lattes on the way to work when you’re pressed for time or not in control of the agenda. Instead of patronizing fast-food restaurants more frequently, retirees reserve their eating-out dollars for table-service restaurants (and know how to work the discounts).
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4. You’ll spend less on entertainment in retirement
No job means lots of time for lots of fun, am I right? Not so fast. There’s a common misconception that you’ll spend more money in retirement on entertainment — concerts, movies, clogging competitions, you name it — because you have more time. But the numbers don’t back this up.
Looking at average annual expenditures from the Bureau of Labor Statistics, adults below the age of 65 spend $3,753 on entertainment, while older adults spend just $2,672.
This decline likely corresponds with changes in mobility as you age. Or you just want to chill after years of slogging to the office. Even if you occasionally splurge to see your favorite band, you may find yourself opting to watch Netflix instead of going out every weekend. But be careful. Streaming services are popping up everywhere, and their layered charges for more and better options can jack up your entertainment bill. We’re looking at you, Paramount+, Discovery+, Disney+ and all your compadres.
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5. Your housing costs will be cheaper in retirement
According to Nation Swell, 34% of homeowners over the age of 65 had a mortgage in 2022, compared to 70% of homeowners under age 65. Are you in that that lucky group?
To be sure, housing costs don’t disappear entirely in retirement. Even if you’ve paid off the mortgage, you’ll still spend money on home maintenance, property taxes and utilities. Downsizing in retirement? Keep in mind moving costs associated with downsizing, relocating or moving into senior-living facilities. Still, the average annual spending on housing for Americans who are 55 to 64 is $24,140. It decreases to $21,094 for those aged 65 to 74, and it drops further to $19,317 for those 75 and older.
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6. You’ll spend less on education in retirement
The average retired household also sees a big decrease in personal spending on education, with an average annual expenditure of just $373. And even if you are thinking about going back to school in retirement, many colleges and universities offer classes free of charge (or nearly so) to those aged 65 (in some cases, 55-60) and up.
Note: In calculating spending in retirement, the Bureau of Labor Statistics does not factor in money retirees contribute toward college savings plans for their grandchildren.
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7. You’ll spend less on alcohol and tobacco in retirement
You thought it’s be the other way around. After all, in retirement, it’s always 5 o’clock. But no. The New York Times reports that in retirement many Americans find they are less stressed — and therefore smoke and drink less, are less obese, and may be more inclined to exercise.
The average working household spends $413 a year on tobacco and tobacco products, while the average retired household spends $261 a year, almost 50% less. Spending on alcohol also decreases in retirement. According to BLS data, the average working family spends $627 a year on alcoholic beverages, while the average retired family spends $469 a year.
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8. You’ll spend less on pets and pet supplies in retirement
It’s often said that having a pet in retirement can benefit your health in big ways. A four-legged friend can provide companionship for lonely retirees and encourage regular exercise. However, the promised perks don’t have to translate into massive spending. Working households spend an average of $980 each year on pets and pet supplies, while retired households spend approximately $712 on average.
The Bureau of Labor Statistics says that having children, particularly older children at home, increases household spending on pets. Check out our article on what it really costs to own a dog or cat to learn more.
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9. You’ll spend less on taxes in retirement
In an effort to ease the financial burden on retirees, many states waive or lower property taxes for those older than 65 and exempt a portion of retirement income — particularly from pensions, Social Security and retirement-savings plans — from state income taxes. These breaks come in different forms: exemptions, tax credits, deferrals and rate freezes. Check out our articles on most-overlooked tax breaks for retirees and people over 65, as well as our state by state guide to taxes on retirees.
Housholds in which the adults are younger than 65 spend $13,605 annually on personal taxes, compared to just $3,466 for retired housholds. Additionally, households in which the adults are 55 to 64 spend an average of $3,072 each year on property taxes. This number declines to $2,808 for households in which the adults are 65 to 75 years old and $2,408 in households where adults are 75 and older.
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