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?

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