You might expect your expenses to decrease with retirement and, according to statistics from the Department of Labor, that’s true. The average American age 65 and up spends just $57,818 each year. Compare that to adults ages 25 to 34, who spend $67,883 yearly, while those aged 35 to 44 spend $86,049 per year. Between the ages of 45 to 54, Americans spend $91,074 annually. However, the earnings for these age groups are proportionately higher, too.
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Americans ages 65 and up earn just $60,359 before taxes, which means they spend a roughly 95% of their income. Younger Americans spend a smaller percentage, with pre-tax incomes of $89,514, $118,149 and $129,980, repectively. This spending disparity makes sense, as retirees are no longer saving money for retirement. The assumption is that you’ll start tapping into the money you’ve been saving during your working life.
For retirees ages 65 and up, the bulk of their income — 75% according to the report — goes to four expenses. What are they? And how can you work to reduce these costs so your retirement income lasts longer?
Housing makes up roughly 36% of a retirees’ expenses, according to the BLS data. If you can reduce your housing costs, you can free up money for things like travel and hobbies.
If your home’s mortgage is paid in full, it might make sense to stay where you are. But if you can sell your home in today’s market for a hefty profit, you might consider moving to a region with a lower cost of living. A smaller home in a more affordable market, or even a co-op in a senior living community, can dramatically reduce your cost of living.
Plus, you won’t have all the headaches and added expenses that come with a large house, such as emergency home repairs and maintenance.
Transportation, including owning a car, costs $8,172 per year for retirees. Many retirees hesitate to give up the freedom that driving offers. But if you aren’t working, it might be feasible to share a car with your partner.
As with selling your home, downsizing to one car will reduce insurance, repair, and maintenance costs.
Even with programs like Medicare, retirees spend $7,540 in healthcare costs per year. Staying healthy, including eating a healthy diet low in sugar, avoiding alcohol and smoking, and trying to get in some form of exercise each day may be able to reduce your risks of costly diseases. If you are on medication regularly, ask your pharmacist about generic versions of your pills to save money.
You might also evaluate your Medicare plan to find one that will better fit your needs and budget. You might save money with Medicare Advantage, which bundles Medicare parts A, B and, typically, D. The open enrollment period to switch from regular Medicare to a Medicare Advantage plan runs from October 15 to December 7, according to Medicare.gov. But if you are already in a Medicare Advantage plan, you can change to another MA plan between January 1, 2024, and March 31, 2024.
After health costs, food is the next largest line item on a retiree’s budget. Americans over the age of 65 spend an average of $7,306 on food per year. While you want to enjoy good, healthy meals in your retirement, you might also consider ways you can save money.
Consider cooking at home more often than dining out. When you do eat out, ask about senior specials. Sometimes, these discounts aren’t advertised.
Likewise, grocery stores like Savers and Albertsons have senior discounts on certain days of the week. You will most likely have to ask for the discount, as most retail workers won’t suggest it.
You can also save money on groceries by meal planning and sticking to your list, that way you won’t give into impulse purchases. Try not to shop on an empty stomach, when you’re likely to be tempted by pre-packaged snack foods that are bad for your health and worse for your wallet.
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Retirement can be expensive, but you can find ways to live within your means and still enjoy life. Knowing where your money goes, and actively taking steps to reduce costs, is the first step to financial peace-of-mind.
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This article originally appeared on GOBankingRates.com: Retirees Spend Nearly $5,000 a Month — Here’s Where Their Income Goes and How To Plan Accordingly