Everyone’s experience in retirement is different, of course, and planning ahead for it can feel pretty theoretical until you actually get there. All the same – and even though Baby Boomers know that their retirements will be very different from the way their parents retired – it helps to hear how others have experienced this major life change. Especially when it comes to money: Knowing what costs and spending patterns older Americans have encountered will help you evaluate your financial security and plan for your own future.
That’s why we were so interested in the data from a recent report published by the Bureau of Labor Statistics on families with at least one member aged 55 or older. We’ve narrowed down the findings to those that should be most useful for planning your retirement. Here’s what we learned about spending in the Baby Boomer (and older) segment.
1. Healthcare spending rises and stays up.
Healthcare spending peaks for people aged 65 to 74, with these households spending almost $6,000 a year – a $1,000 increase from the decade earlier. From 75 on, spending declines, but only slightly, to $5,708.
2. Total annual expenditures drop an average of $9,797 every decade after 55.
Annual spending steadily decreases, dropping to $36,673 for households with people over the age of 75. Not surprisingly, pre-tax income decreases at a much faster rate. Households with members between ages 65 and 74 earn an average annual pre-tax income of $52,366, which is a $22,875 decrease from a decade before.
Source: 2014 Consumer Expenditure Survey, Bureau of Labor Statistics
3. Entertainment spending rises after 65.
But it’s not all scrimping and doctor visits. While most expenses decline as people get older, spending on entertainment rises – at least for people ages 65 to 74. Households with a respondent between the ages 65 and 74 spent almost $3,000 annually on entertainment. At 75, entertainment expenditures start declining.
4. Housing is the largest expense once you reach 55.
The average annual outlay for housing is $16,219, which amounts to 33% of all expenses. People aged 75 and older spend $13,375 on housing per year and most tend to live alone.
5. Expect to pay for a car lease or maintenance well into your 70s
Households with people over the age of 55 have an average of 1.9 vehicles and spend $8,002 per year on transportation. The average number of vehicles drops to 1.4 for households with people over the age of 75, probably again because more of them live alone. People actually spend more on transportation than on food or healthcare. As for clothes: It’s the smallest outlay.
The Bottom Line
Needless to say, what you will actually spend on retirement depends on your income level and assets. Use this survey as a guideline to how you might expect to allocate your funds. Budget the most for housing, transportation, food and healthcare. Allot a healthy amount for entert