What Costs Should I Expect in Retirement and How Can I Reduce Them?

August 5, 2022

Steps you can take to reduce retirement costs

Retirees spend an average of $3,800 per month on living expenses, according to the U.S. Bureau of Labor Statistics (1). From housing and transportation to medicine and groceries, costs can add up very quickly. This guide will help you understand what costs you can expect in retirement and tips for reducing them.

1. Housing

Although housing prices vary considerably by state, retirees across the country spend over $16,000 on housing expenses each year. Often, housing is the biggest expense in retirement (1). To slash this cost, try the tips below:

Pay off your mortgage

Many Americans find mortgage payments to be one of their largest expenses. On average, mortgage payments cost roughly 25% of people’s annual income. By paying off your mortgage, you’ll drastically reduce your monthly housing costs, and you’ll have the security of living in a home that’s been paid for completely.

Downsize and relocate

Downsizing your home can help reduce your property taxes, utility bills, and home maintenance costs. To reduce your expenses even more, you could consider moving to an area with lower property taxes and a lower cost of living. Some states even offer tax breaks and exemptions for retirees, too.

Relocating to a neighborhood with a homeowner’s association could be worthwhile if you’re looking to reduce your home insurance costs. In areas that have a homeowner’s association, you’ll only need to buy contents insurance; you won’t need homeowner’s insurance. Making this change could save you around $3,000. Always ask a local insurance agent for advice before changing insurance policies.

2. Food

Like housing costs, food costs vary significantly depending on where you live. On average, a single person spends $150 to $300 per week on food, including groceries and dining out (1). Try the following ideas to cut your food bills:

Cook at home

Across the United States, each person spends an average of $3,000 per year on eating out. Cooking at home allows you to have much more control over your food bill. On a moderate budget, the typical grocery bill ranges from $2,400 to $4,000 per year (1).

To make cooking at home easier, try to plan your meals in advance. It can help to make a weekly shopping list based on your meal plan. To keep costs down, try to plan your meals around whole foods and in-season fruits and vegetables. These foods tend to be much more filling than processed, prepackaged foods. When you make a meal at home, save the leftovers for the next day to further reduce your grocery bills.

Use discounts and store loyalty programs

Many grocery stores have specific days of the week when retirees can get a percentage off their total grocery bill. Sometimes, the discount can be as much as 10%. Find out when the discount days are at your local stores, and shop on those days. If your store offers a loyalty card, bring it with you each time you shop.

Shop for groceries online

Some online-only stores sell groceries at prices that are much cheaper than what you would pay at your local store, especially if you live in an area with few grocery stores. You’ll be able to find specialty items at much more affordable prices, and you can save more by using promotion codes. Depending on the online store you choose, you may be able to save 40% or more off the price you’d pay at your local store (2). Plus, grocery shopping online can cut down on unplanned purchases that can rack up your bill. 

3. Transportation

Yearly transportation costs for single drivers in the United States range from roughly $2,200 to $5,100 (3). Your transportation costs during retirement could be higher than this, especially if you go on frequent road trips. Here are some tips you can use to reduce transportation costs:

Buy a used car or an electric vehicle

Instead of buying a new car, opt for a gently used one. The typical price of a brand-new car is $37,000 (4), but used cars sell for an average of $20,000. You could also try replacing your gas-powered car with an electric one. While the average yearly cost of operating a gas-powered car is $1,117, the yearly operating cost for electric vehicles is around $485 (4).

Use public transit

If you live in an area with a bus, subway, or light rail system, consider using it when you can. Daily, weekly, and monthly public transportation passes allow you to get the cheapest rates on travel, and taking public transit means that you can cut down on driving and the expenses that come with it. As an added bonus, public transit helps you socialize with others, and walking to and from bus or train stations keeps you active.

4. Gifts and entertainment

During retirement, you may find yourself spending more on family gifts and monetary donations to charity. The average person spends 5% of his or her income on entertainment (1), and you could notice that your entertainment spending increases above this amount during retirement, too. To reduce costs in these areas, consider trying the following tips:

Use streaming services instead of cable

Generally, switching from cable TV to a streaming service saves roughly $50 a month. If you’re willing to reduce the number of channels you have, you can save even more money. Compare prices of several streaming services with your local cable TV providers to find the right package for your needs.

Make homemade gifts

Making homemade gifts is a thoughtful way to show others that you care. It allows you to give your time and be creative. If you knit or crochet, consider making blankets or scarves as holiday gifts for family members. They will treasure them forever. You could also make baked goods or jams for friends and loved ones. Generally, homemade gifts are much less expensive than store-bought equivalents, and the gift recipients will cherish the fact that you spent time and care in making their presents.

5. Health care and medicines

For people with Medicare, the average out-of-pocket costs are between $5,800 and $6,000 per year (5). In addition, medication costs for patients with Medicare Part D increase each year. To reduce your health care and medication spending, implement these tips:

Take a proactive approach to your health

Eating healthy meals, exercising regularly, and getting regular medical checkups can help prevent many of the health conditions that are common in retirement, including high blood pressure and diabetes. If a health issue is discovered early through a routine checkup, treatment may be simpler and less expensive. Taking a proactive approach could mean that you need fewer medicines, too.

If a prescription is required, always ask your doctor if a generic medicine could be right for your needs. Generic drugs are much cheaper than brand-name drugs, and they are just as effective.

Get the right Medicare plan for your needs

Depending on your overall health status and the medications you take, it’s possible that switching to a different Medicare plan could reduce your health care costs and save you money on your prescriptions. At SmartMatch, we can help you find the most appropriate plan that covers all of your needs. With our Plan Comparison Tool, you can quickly see all of the available plans and how much you could save. Contact us today to find out more.

 

Sources

1: U.S. Bureau of Labor Statistics, Consumer Expenditures Report 2019 https://www.bls.gov/opub/reports/consumer-expenditures/2019/pdf/home.pdf

2: Chelsee Lowe. “We order all of our groceries online, and it saves us more than $750 a month in time and money.” https://www.businessinsider.com/ordering-groceries-online-saves-money-2019-8#heres-what-our-monthly-delivered-grocery-plan-and-bill-actually-look-like-for-our-family-of-three-5

3: “Household Spending on Transportation.” https://www.bts.dot.gov/sites/bts.dot.gov/files/docs/browse-statistical-products-and-data/transportation-economic-trends/224726/tet-2018-chapter-6.pdf

4: AAA. “True Cost of Electric Vehicles. ”https://www.aaa.com/autorepair/articles/true-cost-of-ev

5: Kaiser Family Foundation. “How Much Do Medicare Beneficiaries Spend Out of Pocket on Health Care?.” https://www.kff.org/medicare/issue-brief/how-much-do-medicare-beneficiaries-spend-out-of-pocket-on-health-care/

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