Most people approaching retirement focus on how much they’ve saved. But the more important question is: How much will you actually spend?
You can have $1 million saved and still run out of money if your expenses are too high. Conversely, you can retire comfortably with $500,000 if your expenses are modest and well-planned.
The challenge is that retirement expenses aren’t just your current spending minus your mortgage and commuting costs. Some expenses disappear, others increase, and new categories emerge that many people never anticipate. For those in their 50s and 60s, getting this right is critical—underestimating by even $10,000 annually could mean needing $250,000-$330,000 more in savings.
Why Most People Underestimate Retirement Expenses
Common planning mistakes:
The 70-80% myth:
- Many assume they’ll need 70-80% of pre-retirement income
- Reality: Many retirees spend 90-100%+ in early retirement
- Travel, hobbies, and healthcare often cost more than expected
Forgetting about taxes:
- Retirement income is often taxable (401k withdrawals, pension, Social Security)
- You still pay income taxes, property taxes, and sales taxes
- Many people forget to budget for this
Underestimating healthcare:
- Medicare isn’t free and doesn’t cover everything
- Out-of-pocket costs average $6,000-$7,000+ per person annually
- Long-term care isn’t included in these estimates
Assuming expenses stay flat:
- Inflation erodes purchasing power
- Healthcare inflates faster than general inflation (5-6% vs. 3%)
- What costs $60,000 today will cost $145,000 in 30 years at 3% inflation
Not planning for the unexpected:
- Home repairs, car replacement, helping family
- These aren’t annual expenses but need to be budgeted
- Essential Retirement Expenses You Must Plan For
- Housing Costs
Even if your mortgage is paid off, housing isn’t free.
Ongoing housing expenses:
Property taxes
National average: $2,471/year
- High-tax states (NJ, IL, NH): $5,000-$10,000+/year
- Low-tax states (AL, LA, HI): $500-$1,500/year
- Important: Property taxes typically increase 2-4% annually
Homeowners insurance
- National average: $1,500-$2,000/year
- High-risk areas (coastal, wildfire zones): $3,000-$6,000+/year
- Increases with inflation and property value
Maintenance and repairs
- Rule of thumb: 1-3% of home value annually
- $300,000 home: $3,000-$9,000/year
- Includes: roof, HVAC, plumbing, painting, landscaping
- Major expenses: New roof ($8,000-$15,000), HVAC replacement ($5,000-$10,000)
Utilities
- Electric, gas, water, sewer, trash: $200-$400/month
- Internet and phone: $100-$150/month
- Total: $3,600-$6,600/year
HOA fees (if applicable)
Average: $200-$400/month ($2,400-$4,800/year)
Can increase significantly over time
Total housing costs (mortgage paid off):
- Modest home: $8,000-$15,000/year
- Average home: $15,000-$25,000/year
- Expensive home/area: $25,000-$50,000+/year
If you still have a mortgage:
- Add $12,000-$36,000+/year depending on payment
- Consider whether paying it off before retirement makes sense
- Healthcare Costs
This is the most commonly underestimated category—and the most dangerous to get wrong.
Before Medicare (if retiring before 65):
Private health insurance
- Individual: $600-$900/month ($7,200-$10,800/year)
- Couple: $1,200-$2,500/month ($14,400-$30,000/year)
- Costs vary by age, location, and plan type
ACA marketplace subsidies
- Available based on income
- Strategic income management can significantly reduce costs
- Subsidies can reduce premiums by 50-80% for some retirees
COBRA (if recently left employer)
- Typically 102% of employer’s cost
- Usually $1,500-$2,500/month for family
- Only available for 18 months
Total for 3 years (age 62-65):
- Without subsidies: $43,200-$90,000
- With subsidies: $15,000-$40,000
After Medicare (65+):
Medicare Part B premium
- Standard: $174.70/month ($2,096/year) in 2024
- High earners pay more (IRMAA surcharges)
Medicare Part D (prescription drugs)
- Average: $30-$100/month ($360-$1,200/year)
- Varies by plan and medications
Medigap or Medicare Advantage
- Medigap: $100-$300/month ($1,200-$3,600/year)
- Medicare Advantage: $0-$100/month, but higher out-of-pocket costs
Out-of-pocket costs
- Deductibles, copays, coinsurance
- Dental, vision, hearing (not covered by Medicare)
- Average: $3,000-$5,000/year per person
Total annual healthcare costs in retirement:
- Healthy individual: $4,000-$6,000/year
- Healthy couple: $8,000-$12,000/year
- Average couple: $12,000-$18,000/year
- Complex health issues: $20,000-$30,000+/year
Fidelity’s 2023 estimate: A 65-year-old couple needs $315,000 for healthcare throughout retirement (not including long-term care).
Don’t forget:
Healthcare costs inflate at 5-6% annually (faster than general inflation)
Costs typically increase as you age
One serious illness can cost $50,000-$100,000+ even with insurance
- Long-Term Care
This is the elephant in the room that many people ignore.
The statistics:
70% of people over 65 will need some form of long-term care
Average duration: 3 years
Women need care longer than men (average 3.7 years vs. 2.2 years)
Costs (2024):
Home health aide: $30-$35/hour ($62,000-$73,000/year for full-time)
Assisted living: $50,000-$70,000/year
Nursing home (semi-private): $90,000-$100,000/year
Nursing home (private): $100,000-$120,000/year
Planning options:
Self-insure: Set aside $200,000-$400,000
Pros: Flexibility, money stays in family if not used
Cons: Requires significant additional savings
Long-term care insurance: $2,000-$5,000/year in premiums
Pros: Transfers risk, protects assets
Cons: Expensive, premiums can increase, may never use
Best purchased in your 50s (cheaper, easier to qualify)
Hybrid policies: Life insurance with LTC rider
Pros: Death benefit if not used for care
Cons: More expensive than term life insurance
Budget consideration: Even if you don’t buy insurance, budget $3,000-$5,000/year for potential future care needs or insurance premiums.
- Food and Daily Living
Groceries:
Individual: $300-$500/month ($3,600-$6,000/year)
Couple: $500-$800/month ($6,000-$9,600/year)
Increases with inflation (3-4% annually)
Dining out:
Varies widely by lifestyle
Modest: $200-$400/month ($2,400-$4,800/year)
Average: $400-$600/month ($4,800-$7,200/year)
Frequent: $600-$1,000+/month ($7,200-$12,000+/year)
Personal care:
Haircuts, toiletries, clothing
$100-$300/month ($1,200-$3,600/year)
Total food and daily living:
Modest: $12,000-$18,000/year
Average: $18,000-$25,000/year
Comfortable: $25,000-$35,000+/year
- Transportation
If you keep your car(s):
Car insurance
Average: $1,500-$2,500/year per car
Seniors may get discounts
Rates vary dramatically by location
Gas
Average: $150-$300/month ($1,800-$3,600/year)
Less if you’re not commuting
Maintenance and repairs
Average: $1,000-$2,000/year per car
Increases as car ages
Car replacement
Average car lifespan: 12-15 years
New car: $30,000-$50,000
Used car: $15,000-$25,000
Budget: $2,000-$4,000/year for future replacement
Total transportation (one car):
$6,000-$12,000/year
Total transportation (two cars):
$10,000-$20,000/year
Alternative: Reduce to one car
Many retirees find they don’t need two vehicles
Savings: $4,000-$8,000/year
- Taxes
Many people forget they’ll still pay taxes in retirement.
Federal income tax:
Traditional 401(k)/IRA withdrawals: Fully taxable
Social Security: Up to 85% taxable depending on income
Pension: Usually fully taxable
Investment income: Taxed at capital gains rates (0-20%)
State income tax:
41 states tax retirement income to some degree
9 states have no income tax (FL, TX, NV, WA, TN, SD, WY, AK, NH)
Some states don’t tax Social Security
Property tax:
Continues regardless of income
Often increases 2-4% annually
Sales tax:
Varies by state (0-10%+)
Affects all purchases
Estimated tax burden:
Low income ($40,000-$60,000): $2,000-$6,000/year
Moderate income ($60,000-$100,000): $6,000-$15,000/year
Higher income ($100,000+): $15,000-$30,000+/year
Tax planning can save $100,000-$300,000 over retirement through:
Strategic withdrawal sequencing
Roth conversions
Managing Social Security taxation
Timing of income recognition
- Travel and Entertainment
This is where retirement expenses often exceed expectations.
Early retirement (ages 65-75) – “Go-go years”:
Many retirees travel more than they did while working
Bucket list trips, visiting family, extended vacations
Typical spending:
Modest travelers: $3,000-$6,000/year
Average travelers: $6,000-$12,000/year
Frequent travelers: $12,000-$25,000+/year
Other entertainment:
Hobbies, golf, dining, concerts, subscriptions
$2,000-$8,000/year
Total travel and entertainment:
Modest: $5,000-$10,000/year
Average: $10,000-$20,000/year
Active: $20,000-$35,000+/year
Important: This typically decreases in later retirement (ages 75+) as activity levels decline.
- Insurance (Beyond Health)
Life insurance:
Term life: $500-$2,000/year (if still needed)
Many retirees drop life insurance once assets are sufficient
Consider whether you still need it
Umbrella liability insurance:
Recommended: $1-2 million coverage
Cost: $200-$500/year
Protects assets from lawsuits
Long-term care insurance:
$2,000-$5,000/year (if purchased)
Premiums can increase over time
- Unexpected and Irregular Expenses
These aren’t annual, but they will happen.
Home repairs:
New roof: $8,000-$15,000 (every 20-30 years)
HVAC replacement: $5,000-$10,000 (every 15-20 years)
Water heater: $1,000-$2,000 (every 10-15 years)
Painting: $3,000-$8,000 (every 10-15 years)
Car replacement:
Every 10-15 years
$15,000-$50,000 depending on new vs. used
Helping family:
Adult children, grandchildren
Many retirees spend $5,000-$20,000/year helping family
Not required, but common
Gifts and donations:
Holiday gifts, charitable giving
$1,000-$5,000+/year
Budget for irregular expenses:
Conservative: $3,000-$5,000/year
Realistic: $5,000-$10,000/year
Comfortable buffer: $10,000-$15,000/year
The Three Phases of Retirement Spending
Retirement expenses aren’t static—they change over time.
Phase 1: Ages 65-75 (“Go-Go Years”)
Characteristics:
Most active period
Highest discretionary spending
More travel, dining, entertainment
Often 100-110% of initial retirement budget
Typical annual expenses:
Modest lifestyle: $50,000-$65,000
Comfortable lifestyle: $70,000-$90,000
Affluent lifestyle: $100,000-$150,000+
Phase 2: Ages 75-85 (“Slow-Go Years”)
Characteristics:
Reduced activity levels
Less travel, more local activities
Lower discretionary spending
Often 80-90% of initial retirement budget
Typical annual expenses:
Modest lifestyle: $40,000-$55,000
Comfortable lifestyle: $55,000-$75,000
Affluent lifestyle: $80,000-$120,000
Phase 3: Ages 85+ (“No-Go Years”)
Characteristics:
Minimal discretionary spending
Increased healthcare costs
Potential long-term care needs
Variable spending (can return to 100%+ of initial budget)
Typical annual expenses:
Modest lifestyle: $45,000-$60,000 (if healthy)
Comfortable lifestyle: $60,000-$85,000
With long-term care: $90,000-$150,000+
Sample Retirement Budgets
Budget 1: Modest Lifestyle ($55,000/year)
Housing: $10,000
Healthcare: $10,000
Food: $8,000
Transportation: $6,000
Utilities: $3,000
Taxes: $5,000
Travel/Entertainment: $6,000
Insurance: $2,000
Miscellaneous: $5,000
Total: $55,000/year
Budget 2: Comfortable Lifestyle ($80,000/year)
Housing: $18,000
Healthcare: $14,000
Food: $12,000
Transportation: $10,000
Utilities: $4,000
Taxes: $10,000
Travel/Entertainment: $15,000
Insurance: $3,000
Miscellaneous: $8,000
Total: $80,000/year
Budget 3: Affluent Lifestyle ($120,000/year)
Housing: $30,000
Healthcare: $18,000
Food: $18,000
Transportation: $15,000
Utilities: $5,000
Taxes: $18,000
Travel/Entertainment: $25,000
Insurance: $5,000
Miscellaneous: $10,000
Total: $120,000/year
How to Create Your Personal Retirement Budget
Step 1: Track Current Spending
Track for 3-6 months:
Use budgeting apps (Mint, YNAB, Personal Capital)
Review credit card and bank statements
Don’t rely on estimates—use actual data
Categories to track:
Housing, food, transportation, healthcare, entertainment, insurance, taxes, miscellaneous
Step 2: Adjust for Retirement Changes
Expenses that typically decrease:
Commuting costs
Work clothes and dry cleaning
Retirement account contributions (you’ll be withdrawing instead)
Mortgage (if paid off)
Life insurance (if dropped)
Expenses that typically increase:
Healthcare (especially before Medicare)
Travel and entertainment
Hobbies
Time at home (utilities, maintenance)
New expenses:
Medicare premiums and out-of-pocket costs
Long-term care insurance (if purchased)
More frequent car/home maintenance (you’re home more)
Step 3: Add Inflation
Apply different inflation rates:
General expenses: 3% annually
Healthcare: 5-6% annually
Property taxes: 2-4% annually
Example:
$70,000 budget today becomes:
$94,000 in 10 years (age 75)
$126,000 in 20 years (age 85)
$169,000 in 30 years (age 95)
Step 4: Add Buffer for Unexpected
Add 10-20% buffer:
$60,000 budget → $66,000-$72,000 with buffer
Covers unexpected repairs, helping family, medical issues
Step 5: Test Different Scenarios
Create three budgets:
Minimum budget: Essential expenses only
What you absolutely must spend
No discretionary items
Use if markets crash or emergency
Target budget: Comfortable lifestyle
Includes discretionary spending
Travel, hobbies, entertainment
Your planning baseline
Ideal budget: Everything you want
All bucket list items
Generous travel and entertainment
Use if portfolio performs well
This gives you flexibility to adjust based on circumstances.
Common Budget Planning Mistakes
Mistake 1: Using current income instead of expenses
You need to replace spending, not income
If you earn $100,000 but spend $70,000, you need $70,000 (not $80,000)
Mistake 2: Forgetting about taxes
Retirement income is often taxable
Budget for 10-20% going to taxes
Mistake 3: Underestimating healthcare
Most people budget $5,000-$6,000/year
Reality: $12,000-$18,000/year for a couple
Mistake 4: Assuming expenses stay flat
Inflation will increase costs 3-4% annually
Healthcare inflates even faster
Mistake 5: Not planning for irregular expenses
Car replacement, home repairs, helping family
These will happen—budget for them
Mistake 6: Being too optimistic about lifestyle changes
“We’ll spend less in retirement”
Reality: Many spend more, especially early retirement
Mistake 7: Not having spending flexibility
Markets will fluctuate
You need ability to reduce discretionary spending if needed
How RetirementView Helps You Plan Expenses
Creating an accurate retirement budget requires more than a spreadsheet.
RetirementView provides:
Expense planning tools
Categorized expense tracking
Inflation adjustments by category
Phase-based spending (go-go, slow-go, no-go years)
Healthcare cost projections
Medicare premium estimates
Out-of-pocket cost projections
Long-term care planning
Tax calculations
Federal and state income tax estimates
Social Security taxation
Required Minimum Distribution impacts
Year-by-year expense projections
See how expenses evolve over 30+ years
Understand inflation’s cumulative impact
Identify high-expense years
Scenario testing
Compare different lifestyle choices
Test impact of downsizing, relocating
See how expense reductions improve plan success
Gap analysis
Shows if projected income covers expenses
Identifies shortfalls before they happen
Provides specific recommendations
Ready to Build Your Retirement Budget?
The difference between a comfortable retirement and running out of money often comes down to accurate expense planning.
Critical questions to answer:
What will you actually spend in retirement?
How will expenses change over time?
Are you accounting for healthcare realistically?
What happens if you need long-term care?
How much flexibility do you have to reduce spending?
Generic estimates and rules of thumb aren’t enough when your financial security is at stake.
Explore RetirementView and create a realistic retirement budget.
[Plan Your Retirement Expenses →]
CLICK HERE
Frequently Asked Questions
How much do most retirees actually spend?
According to the Bureau of Labor Statistics (2023):
By age group:
Ages 65-74: Average $57,818/year
Ages 75+: Average $44,664/year
However, these are averages and vary dramatically by:
Location (urban vs. rural, high-cost vs. low-cost states)
Housing status (mortgage paid vs. renting)
Health status
Lifestyle preferences
More useful breakdown by lifestyle:
Modest lifestyle: $40,000-$60,000/year
Paid-off home
Minimal travel
Basic healthcare
One car
Comfortable lifestyle: $60,000-$90,000/year
Paid-off home or manageable housing costs
Regular travel
Good healthcare coverage
One or two cars
Hobbies and entertainment
Affluent lifestyle: $100,000-$150,000+/year
Significant housing costs or second home
Frequent travel
Premium healthcare
Multiple vehicles
Extensive hobbies and entertainment
The key: Don’t rely on averages. Track your own spending and adjust for retirement changes.
Will I really spend less in retirement?
The myth: You’ll automatically spend 70-80% of pre-retirement income.
The reality: It depends on your specific situation.
You’ll likely spend less if:
Your mortgage is paid off
You were saving 15-20%+ for retirement
You had high work-related expenses (commuting, work clothes)
You plan a modest lifestyle
You’re downsizing your home
You’ll likely spend the same or more if:
You still have a mortgage or rent
You weren’t saving much pre-retirement
You plan to travel extensively
You have expensive hobbies
You’re retiring before 65 (higher healthcare costs)
You want to help family financially
Early retirement spending patterns:
Many retirees spend 90-110% of pre-retirement spending in years 65-75
Travel, hobbies, and “making up for lost time” drive higher spending
Spending typically decreases after age 75
Bottom line: Don’t assume you’ll spend less. Track actual expenses and plan conservatively.
How much should I budget for healthcare in retirement?
Before Medicare (retiring before 65):
Private insurance:
Individual: $7,200-$10,800/year
Couple: $14,400-$30,000/year
With ACA subsidies (income-dependent):
Can reduce costs by 50-80%
Requires strategic income management
After Medicare (65+):
Minimum budget (healthy, no complications):
Medicare Part B: $2,096/year
Part D (prescriptions): $360-$1,200/year
Medigap: $1,200-$3,600/year
Out-of-pocket: $1,000-$2,000/year
Total per person: $4,656-$8,896/year
Couple: $9,312-$17,792/year
Realistic budget (average health):
Medicare premiums: $2,500-$4,000/year per person
Out-of-pocket costs: $3,000-$5,000/year per person
Dental, vision, hearing: $1,000-$2,000/year per person
Total per person: $6,500-$11,000/year
Couple: $13,000-$22,000/year
Higher budget (chronic conditions):
Can easily reach $15,000-$20,000+ per person annually
Don’t forget:
Healthcare costs inflate at 5-6% annually
Costs typically increase with age
Fidelity estimates $315,000 needed for couple’s lifetime healthcare (not including long-term care)
Safe planning approach: Budget $12,000-$18,000/year for a couple, increasing 5-6% annually.
Should I plan to downsize my home in retirement?
Potential benefits of downsizing:
Reduced housing costs:
Lower property taxes ($2,000-$5,000+/year savings)
Lower insurance ($500-$1,500/year savings)
Lower maintenance ($2,000-$5,000+/year savings)
Lower utilities ($500-$2,000/year savings)
Total potential savings: $5,000-$15,000+/year
Cash from sale:
Sell $400,000 home, buy $250,000 home = $150,000 to invest
$150,000 invested at 6% = $9,000/year in additional income
Less maintenance burden:
Smaller home = less to maintain
Less yard work, cleaning, repairs
More time for activities you enjoy
Potential downsides:
Emotional attachment:
Leaving family home can be difficult
Memories and neighborhood connections
Moving costs:
Realtor fees (5-6% of sale price)
Moving expenses ($3,000-$10,000)
Renovations to new home
May not save as much as expected:
Smaller homes in desirable areas can be expensive
Condo/HOA fees can be $300-$600/month
New home may need updates
Best approach:
Consider downsizing if:
Home is too large for your needs
Maintenance is becoming burdensome
You need to reduce expenses
You want to relocate anyway
Don’t downsize if:
You love your home and can afford it
You have family nearby
Your home is paid off and expenses are manageable
You plan to age in place
Alternative to downsizing: Stay in your home but reduce other expenses (travel, dining out, etc.)
Timing: Many experts recommend downsizing in your late 60s or early 70s while you’re still healthy enough to manage the move.
How do I plan for expenses I can’t predict?
Unpredictable expenses fall into categories:
- Irregular but expected:
Car replacement (every 10-15 years)
Home repairs (roof, HVAC, etc.)
Appliance replacement
Planning approach:
Estimate total cost and frequency
Divide by years to get annual amount
Example: $15,000 car every 12 years = $1,250/year to budget
- Possible but uncertain:
Major health issues
Long-term care needs
Helping family members
Planning approach:
Build 10-20% buffer into budget
Maintain emergency fund (6-12 months expenses)
Consider insurance (health, long-term care)
Have contingency plans (reduce discretionary spending if needed)
- Completely unexpected:
Natural disasters
Family emergencies
Economic crises
Planning approach:
Maintain adequate insurance (home, health, umbrella liability)
Keep 1-2 years of expenses in cash/stable investments
Have flexible spending plan (know what you can cut)
Don’t plan to spend 100% of safe withdrawal amount
The three-tier budget approach:
Tier 1: Essential expenses (60-70% of budget)
Housing, healthcare, food, utilities, taxes
Cannot be reduced
Tier 2: Important but flexible (20-30% of budget)
Transportation, insurance, some entertainment
Can be reduced if necessary
Tier 3: Discretionary (10-20% of budget)
Travel, dining out, hobbies, gifts
Can be eliminated if needed
This structure gives you flexibility to handle unexpected expenses by temporarily reducing Tier 2 and 3 spending.
Emergency fund recommendations:
Minimum: 6 months of essential expenses
Better: 12 months of total expenses
Ideal: 18-24 months of total expenses
With proper planning, most “unexpected” expenses become manageable rather than catastrophic.