A recent article posted on CNBC.com reveals that you’d need as much as $1 million or more to cover a 25-year retirement in a number of states across the USA. Of course, since living expenses vary depending on where you live, the national average for a 25-year retirement comes in at over $800,000. To calculate how much you need to save for retirement, it’s important to understand how much current retirees spend each year on living expenses.
The Cost Of Housing
Housing has always been the biggest expense for retirees. Typically, housing expenses include mortgage payments or rent, homeowners’ insurance, property taxes, and HOA fees. According to the most recent statistics from the Bureau of Labor Statistics, retirees 65 and over spend an average of 36.2% of their annual income on housing.
Transportation Expenses
Whether you call an Uber to take you to doctor appointments and shopping or drive yourself in your own vehicle, transportation is a top expense in retirement. For today’s retirees age 65-plus, 13.7% of their retirement income is spent on transportation. Keep in mind this does not include the cost of air travel for vacations or other on-the-road adventures in retirement.
“With more than 11,000 Baby Boomers turning 65 every day, the cost of healthcare is expected to rise even more over the next decade.”
Healthcare Expenses
Currently, the latest estimate of healthcare expenses for retirees puts it at 13.5% of their overall expenses. However, with the rapidly rising cost of medical care and prescription drugs, healthcare inflation is proving to outpace the average rate of inflation on consumer goods. With more than 11,000 Baby Boomers turning 65 every day, the cost of healthcare is expected to rise even more over the next decade.
The Cost Of Groceries
According to the Bureau of Labor Statistics, the Consumer Price Index for food at home increased by 3.7% over the year ending in September 2023. This means that food prices have increased by over 3 times the overall inflation rate. For seniors age 65 and over, the cost of groceries currently accounts for 12.4% of their yearly expenses.
The Cost Of Utilities
Over a 25-year retirement, the cost of utilities will take an increasingly larger bite out of your retirement income. Even if the current rate of inflation stabilizes, the cost of oil can spike due to any number of international events. Add to this, as you age, you’ll be spending more time at home with the lights on and the AC running. For current retirees, the cost of utilities accounts for roughly 7.5% of their living expenses.
If you need help estimating your retirement expenses, meet with an FRC® trained advisor.
