Our Retirement Expenses: Where Does the Money Go?

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What will it cost you to live in retirement? You may be asking this question as you plan your future. You could try to answer it by looking at national statistics on living expenses. The Consumer Expenditure Survey from the Bureau of Labor Statistics, is widely cited. But truly, you are the only one with the key to the riddle. And the best answer will come from tracking your own actual expenses….

To get you started, I’m going to review our major retirement expenses by budget category, below. Maybe our lifestyle is similar to yours; maybe not. But it can be helpful to hear how others live and then compare their experience with yours. So, I offer this view into our financial life. Take it for what it’s worth: an example, but not a prescription — by any means.

Spending is a very personal area. No doubt some will be surprised at what we do, and don’t, spend money on. But the details of our own finances aren’t the important point here. Use these numbers, and the following discussion, as reference points to assess and challenge your own living expenses.

For starters, do you know what those expenses are? Are you comfortable that they reflect your true priorities in life? And, do you, or will you, have enough saved to fund them in retirement?

The Big Picture

When I discuss our expenses below, I’ll be giving our long-term averages or our target for each spending category. In any given month or year we might stray from these averages, plus or minus, by a healthy margin. We might spend more because we’ve had an emergency or a splurge, or we might spend less because we found some bargains or decided to save for later.

Our current retirement budget, assuming we lived in a paid-for house, is around $4,500/month. (To simplify this discussion and related comparisons for most people, I’ll deal with housing costs separately, below. I tend to discuss living expenses and housing separately, because most people are living in a paid off house at retirement, not paying rent as we are now.)

To get you thinking about your own expenses in comparison, let’s break this down….

Major Categories

Groceries — We spend approximately $850/month at the grocery store. This figure also includes a fair number of non-grocery items such as household and personal supplies, so perhaps 75% of that number is strictly “food.” Nevertheless, it’s a lot of money. Some people feed themselves on far less. But diet is an area that we prioritize: We buy lots of fresh produce. We buy organic when recommended and not exorbitantly expensive. We could probably do better with pantry management and shopping on sale, but we have made improvements. Altogether, we think that purchasing good food is money well spent — supporting good health and a high quality of life.

Healthcare — We spend about $600/month for our group health insurance plan through Caroline’s public school teacher retirement system. In addition to that, we budget about $500/month for medical and related health expenses: copays, deductibles, prescriptions, massage, etc. For many years we spent less than this. Last year we spent more. We are getting older, sigh. Many of those recent expenses shouldn’t repeat, but you never know. The difficulty with medical expenses is that they can be so unpredictable.

Recreation — Even though it is “optional” in one sense, this is important to us, and one of our largest expenses at about $900/month. It relates directly to the quality of our life in retirement. That figure is split about evenly between dining out, travel, and other. Those “other” expenses include outdoor gear, books, movies, shows, and classes. In a pinch, we could reduce our recreation expenses to virtually zero, by eating at home, restricting travel, and focusing on free entertainment. At times we’ve done that, or close, and we could do it again if we had to.

Transportation — Routine auto expenses have dropped substantially thanks to our new urban lifestyle. We currently budget just a little over $100/month for gas, and most of that is spent while traveling. We can go most of a month now on a single tank of gas. We also budget about $200/month for auto repairs and maintenance. (That was higher last year due to our older vehicle needing an unexpected major repair.) And we pay about $70/month in auto insurance. So total transportation-related expenses come to about $370/month.

Home/Office/Phone/Internet — We spend about $500/month on home and communications. We don’t put money into decorating our place the way some do. Still we need furnishings occasionally, and we have routine maintenance and yard expenses. We throw some money at Verizon and Comcast (the only high-speed Internet in our area) each month. We know it can be done cheaper. But these services are vital to our mobility, to my blogging business, and our quality of life. So far, we haven’t had the incentive to experiment with cheaper alternatives.

Personal/Contributions/Gifts — Miscellaneous personal care expenses: clothing, hair etc., contributions and gifts, come to about $500/month. This can vary depending on the season.

Miscellaneous — Every month about $100-$200 leaves our pockets in miscellaneous, unidentified expenses. These are cash items like snacks, parking, or tips. We’ve managed to reduce this amount over time, so that it is of little concern now. All our major expenses are tracked using credit cards or checks. We know where our money is going with a high degree of certainty.

Taxes — As I’ve written elsewhere, our modest retirement lifestyle incurs minimal income taxes — an effective Federal tax rate of less than 5%. Furthermore, only a portion of our living expenses must be covered by taxable income — because we have substantial after-tax accounts we can draw on. Also, we rent now, so we don’t pay property tax. Altogether, taxes just aren’t a major expense category for us. I keep an eye on them, but most likely if they become a consideration it will be because our income is better than expected, and we are doing well.


In my reader survey and elsewhere on this site I tend to talk about monthly retirement living expenses separate from housing expenses. That’s because the majority of people, as they approach retirement, own their homes. We did. It’s not that housing is free, but it is somewhat of a sunk cost at that point, so your focus will probably be more on those other expenses discussed above.

Of course, as I explored in-depth in my post on renting vs. buying, you’ll be faced with plenty of ongoing house-related living expenses, even if you own your home: insurance, maintenance, taxes, and possibly interest, for example.

We no longer own our home, having sold it last year, before moving to our ideal retirement relocation. So we currently pay $1,400/month to rent a nice but modest 2 BR house in a great location. Utilities (electric, gas, water) are included, eliminating that variable from our monthly expenses. We have another $100/month or so in related expenses, like storing our small RV — so call it $1,500/month for housing.

Roughly speaking, the investment income from the proceeds of our previous home pays for our rent now, though that’s a risk factor we have to monitor. I don’t know if or when we’ll buy another house. I’m certainly in no rush. I think it would only happen if it made financial sense, and was necessary to get the place and location we wanted. So far that hasn’t been the case at all.

Living Large

Bottom line, in normal times, we expect to live on approximately $4,500/month, in addition to our cost of housing.

But, the past year hasn’t been normal. Our spending has been higher. Why? A combination of relocation expenses and one-time costs to establish our new life. The majority of the recent spending has been replacing/upgrading household goods, outdoor gear, and clothing. Some on it has been on travel — mostly one-time family obligations. Very little has been spent on what I’d call “lifestyle inflation” — recurring expenses related to our living infrastructure.

Am I concerned about this recent spending? Not particularly. I expect our expenses to flatten out into our normal budget in the coming months. We’re already seeing that. And the timing has been opportune. We sold our house for more than originally expected. We’re in a bull market and our portfolio has been delivering nice returns. This blog provides a small but steady income. And we recently received a modest inheritance that further buttresses our finances.

Looking Ahead

So, despite the spike in our expenses this past year, our net worth is at a high point. We feel secure. But is the direction of your net worth always a reliable indicator for financial security? Don’t you need that growth in good times to offset the declines in bad times? To some extent, yes.

To really answer the question for your own specific situation and assumptions, you’d need to run your numbers through a retirement calculator. But living a little better when times are good, and cutting back a bit when they are bad, is basic human nature — tried and true behavior since ancient times.

At least one modern researcher agrees with the general principle. Wade Pfau writes: “…with a willingness to cut spending when markets underperform, it is possible to increase the initial spending rate above whatever has been determined as safe for constant inflation-adjusted withdrawals. The intuition for this is that cutting spending when the portfolio is down reduces some of the sequence of returns risk facing retirees using a volatile investment portfolio.”

“Sequence of returns risk” here refers to the irreparable damage done to a portfolio when you must withdraw from it in a down market. So, in practical terms, you get more bang for your buck by cutting back when the chips are down, than you lose by living it up when times are good. Isn’t that nice for a change? Put another way and simplified a bit, it’s the difference between spending earnings (usually safe) versus spending principal (scary).

So how about you? In what categories are your living expenses similar to ours, and where do they diverge? And, would you rather stick to the same budget year after year in retirement, or spend a little more when times are good, and then cut back when they aren’t?


  1. $370 a month on auto expenses when it appear you now drive very little. have you considered if it’s worth your while selling the car and simply using taxis for short trips and hire cars for longer trips?

    • I have considered that, but just can’t get cozy with the idea. We do rent vehicles from time to time when we need a second or larger car. But the convenience of having a personal car at the house full time is hard to give up. I especially think of emergency use: being able to jump in and go…

  2. Maybe I missed it, and it is part of a retirement calculator, but what do you about inflation ? And what are your contingency plans for unforeseen medical (emergency) expenses ? Anyways, great installment.

    • Thanks Dick. This is a snapshot in time of our expenses. Inflation will obviously increase these numbers over time, but it will also be reflected in growth in the value of our investment assets that fund our expenses. So yes, a long-term analysis using a retirement calculator will take that into account. As for emergency expenses, we are fortunate to have plenty of liquid assets. We keep at least 2 years of cash and many more of bonds on hand.

  3. Awesome article as always Darrow! We are in our mid fifties and have been retired for two years. We have budgeted our financial lives for the past 25 years and so retirement has not been any different. Your detailed budget is fairly similar to ours and great for you to share yours. A budget no matter where you are in life is critical and especially for people who want to retire early. When you understand where your money goes you are able to plan and react to things that come up. We have a very detailed budget with 40 different sub categories (my husband a former mechanical engineer!) so we do not over spend while the market is high as it is now. This works for us and as you said spending is a very personal thing. Thanks again for the great article!

    • Thanks for those details Sue. Agree with your budgeting philosophy. It’s like having an extended radar — being able to react to events long before they become a problem. Thanks again: It’s always good to be reminded that there are people in the world even more detailed and disciplined than me. 🙂

  4. Thanks for sharing your expenses. I agree with you philosophy of spending more on good food and good equipment for outdoor recreation. In theory it should lower your healthcare expenses plus it is more fun.

    Can you summarize or list all of your expenses? I went though and added them up with housing and taxes and got a total of $6000 – $6500/mo. Based on these numbers and a conservative 3% withdraw rate, you need about $2.6 million in a portfolio to sustain those monthly expenses (assuming no pension/social security/etc). Are my numbers in the ballpark? Thanks again for your writing to help figure this out.

    • Thanks Stan, agreed on the healthcare expenses and fun! All my expenses are in the post. I’ve added a bit of explanation so hope the totals are clearer now. (I tend to discuss living expenses and housing separately, as explained above.) Your other numbers look right, as far as they go, for a hypothetical scenario where somebody doesn’t own their home and is living solely off investments. That assumes no pension, no Social Security, or other income in retirement. It also assumes a conservative withdrawal rate and a fixed level of spending throughout retirement. My own experience plus much research is showing that spending tends to vary, and to drop off with increasing years.

  5. Groceries for 2 retirees: $400 on average per month, all fresh fruits & veggies, organic at times and always for wheatless breads.
    Healthcare; $160 per month, with subsidies, only go to free annual exams, with no co-pays or deductibles, In excellent health. Take no meds except vitamins (esp B-12). Lots of exercise (walking, hiking, swimming) and good healthy eating.
    Recreation: just bought an r-pod RV (extremely small but adorable) and will estimate $300 per month.
    Transportation: $125 per month for gas for 2 cars, $100 insurance. DH does all repairs. Buys parts wholesale.
    Home office: $35 for internet. $125 for 2 smartphones.
    Personal: I get a haircut every other month, so average $8 per month. DH buzz cuts his own hair for $0. Buy all clothes on consignment. Maybe spend about $200 for the whole year!
    Taxes: what taxes?
    Housing: $816 per month for newish, modular home w/o mortgage (property taxes, insurance, maintenance & electricity).
    This all adds up to $1969 per month. On average, we spend about $2400 a month (all covered by 1 social security and 1 pension). In addition, I put $500 away per month into savings.
    We get all our books, DVD’s CD and museum/art gallery passes for free from the library, sporting gear from yard sales and consignment shops, no movies out but if we do go it’s only $5 each, we see Broadway shows out of NYC for 1/4 of the price (we go around 3X per year. This year saw War Horse, Book of Mormon, Wicked). All concerts we attend are free, as well as classes (currently taking watercolor classes, yoga).

    • Awesome Cindi. You raised the bar! I know we can do better in some of these categories, though in others we’ll choose to spend more. Keep up the thrifty living! Thanks.

  6. Thanks for sharing your expenses. What about life insurance and LTC insurance? We spend about $2,000 on life insurance and $5,000 on LTC ins per year.
    Also, if you have a 401k or IRA when you start taking RMDs at 70 1/2 you will probably be in a much higher tax bracket. We had a retirement analysis done and I was surprised at how much both RMD amounts and taxes were after we hit 70. Our portfolios are not very large.

    • The conventional use for life insurance is to replace lost income from a wage earner, to protect dependents. At financial independence you are no longer dependent on either spouse’s income, so I see no need for life insurance in most situations. LTC is open to debate. It’s a topic for another post, but I generally hold with the view that the policies are not good values, and above a certain net worth, you can self-insure. (See Scott Burns and others.) I’m not expert on RMD’s yet, so I can’t say anything authoritative, but my experience to date is that if you’re in a high tax bracket it’s because you’re doing OK. I will investigate. Thanks.

  7. Great article

    My wife retired 3 years ago. We started tracking our expenses and know fairly well what we need to live off of. We are blessed that our house and cars are paid for. I believe you have to know what your annual “needs”. The 3 or 4 % rule is out in my opinion.

    I developed a simple spread sheet which tracks our yearly needs against what we need to take out of our retirement nest egg. I look at throw off (earnings), and assume 3 % inflation and a 25% tax bracket as a conservative estimate. My spread sheet spans for 30 years and shows our income from SSN.

    I know what I can take out for travel, emergency etc. for each year.

    My financial advisor makes fun of my spread sheet, but loves the plan.

    Thanks so much for all the informative articles.


  8. Your expenses match ours reasonably closely except for one noticeable difference. Your health insurance cost is remarkably low. My current health insurance is $1200 / month for very good but not “gold” coverage. My wife and I are probably older than you, but, even so, that’s a great deal. Most early retirees will have to spend a lot more until old enough for Medicare.

    • Hi David. No question, we are very fortunate in the health insurance department. I credit my wife’s health plan as a key factor in my being able to early retire. I don’t know if you have priced Obamacare or not in your location, but it may offer options.

    • I agree about the medical expenses. I’m retired and on Medicare; my wife is not yet 65 and teaches part-time at a local community college (no benefits). Her medical policy and my Medicare expenses come to $775/mo. But dental isn’t covered by our insurance. Over and above routine cleanings/checkups, we’ve had one extraction and one dental implant so far this year. That comes to almost $9K in the first 7 months.. Even if we have no additional dental expenses this year, our monthly average medical/dental costs will come to at least $1525/mo.

  9. Great article; I enjoyed reading it.

    I have budgeted just about what you have (~$5K/mth or $60K/year) but many of our monthly expenses are lower in comparison. For example, we have extremely low health insurance costs due to my wife’s job before she retired in county government; she is covered at no cost and I have always bought into her plan . We also have no mortgage, and many costs here in the South are lower than elsewhere (we moved here four years ago). To be honest our recurring expenses that match up with yours are less than $30K/year, so I have a built in cushion of another $30K/year for fun and stuff that just happens (e.g. we are currently redoing the kitchen countertops and cooktop).

    I will likely not do a year to year budget like some, although I do track our assets closely. If I see our expenses getting out of whack we will adjust; it will be that simple. And in the interest of full disclosure, my wife retired five years ago at 55, and I did the same this year at 60.

    • Thanks for those details Chuck. Your health insurance costs are a huge plus. We’re fortunate in that department too, but you’ve got a great deal. The South is a good place to retire, no doubt. Living there for many years helped us build our nest egg. I too will likely monitor our expenses less closely as the years go by and I’m sure we’re on track. You’ve got a nice cushion. Thanks again for the comment!

  10. Martha S. says

    A couple of questions: Are your “in retirement” expenses very different from your expenses prior to retirement? In what direction (lower/higher)? Was there anything in particular that was a big surprise after retirement – something (again, either lower or higher cost) than what you expected? Thanks

    • Hi Martha, thanks for those questions. Many people wonder about that. I labeled this post “retirement expenses” because there is so much focus in the media/financial planning on the difference between your expenses when working and when retired. (Items like professional clothing, gas for commuting, and saving for retirement itself will go away for some people.) In fact, for us, there was little difference. We’d been testing our relatively low-cost retirement lifestyle for years and we just kept right on going once we retired with essentially the same budget. (The only item that perhaps changed dramatically specifically due to our retirement was our gasoline expense, thanks to no more commutes plus our new urban location.)

  11. Great post Darrow; thanks for sharing. I was surprised at the similarity between your budget and ours. The only big differences for us are housing (rent) and recreation. We expect housing to be more because we’re planning to return to California in ~6mos, and recreation is more because we plan to take several big trips a year for the next few years.

  12. Mark Schmidt says

    As you talk about in your book, tracking expenses is such a critical component to personal finances and especially retirement. I think that for us I found that it was the best way to establish what our life style should be as we made the adjustments over time.
    Keep up the good work Darrow.

  13. Thank you for the excellent article, Darrow.

    I myself still have streamlined budget, as I have some mortgage debt of approximately $48,000 still left. At the rate I am going, I will be completely out of debt in approximately four years. (I still am in my 50’s.) I have approximately $600 per month in housing expenses (homeowners’ association dues, property taxes, homeowner’s insurance, and utilities), approximately $100 per month for food (as I prepare and eat the overwhelming majority of my meals at home), approximately $150 per month for my car (gasoline, insurance, maintenance, and vehicle registration fees), and approximately $100 per month for miscellaneous expenses (such as eating out on occasion and other non-essential expenses). As my former employer pays the overwhelming majority of my health insurance costs, I pay approximately $150 for health insurance (regular health insurance, dental insurance, vision insurance, and long-term care insurance). Until I pay off my debt completely, I am leading a very simple life. I decided that I would rather sacrifice financially now rather than later on. I know that I will not regret my choice. I am extremely disciplined with regard to spending and saving.

    Thanks again, Darrow.