Because exiting the workforce creates a significant lifestyle change, some of your living expenses may shrink in retirement. Say goodbye to commuting costs, workday lunches out and (if your nest is empty) the high price of raising and educating kids. But not all of your expenses will be lower—and stay lower—after you retire. Here are five reasons your expenses might rise in retirement along with tips to help manage your costs if they do.
1. Health Care Spending Shifts
Your health care spending may shift during retirement for a variety of reasons. You may transition from employer-paid health benefits to paying for your own Medicare or Medicare-related coverage, which introduces a new set of premiums, deductibles and copays. Moreover, people typically need more care as they age. Potential expenses include long-term care, dental care, prescription drugs, vision care, hearing aids, rehabilitative therapies and more.
A Fidelity study of retiree health costs estimates that a single person age 65 in 2023 may need $157,500 saved to cover just health care expenses in retirement. Because costs tend to increase with age, it's important to keep money in reserve through early retirement so you have it to spend on health care in your 70s, 80s and beyond.
How to Save on Health Care in Retirement
- Weigh the costs and benefits of your health coverage carefully. Retirees generally choose between traditional Medicare coverage, Medicare Advantage plans, Medicare supplement programs and income-qualified Medicaid. In some cases, you may save money by paying more in premiums and less in copays and deductibles.
- Open and fund a health savings account (HSA) now. You can't contribute to an HSA once you start Medicare coverage, but funding one pre-retirement could mean tax-deductible contributions now, tax-free growth as your money grows and non-taxable withdrawals for qualified health expenses in retirement. Just be aware this is only an option if you currently have a high-deductible health plan (HDHP).
- Take advantage of catch-up contributions. Once you reach age 50, you're eligible to contribute extra to your 401(k) and traditional or Roth IRA, allowing you to help maximize the funds you'll have available in retirement.
2. Housing Costs Can Increase With Age
Staying in your home isn't always the stable, affordable option you might expect. A T. Rowe Price survey found that home repair is the most common unplanned expense in retirement. Even routine maintenance becomes more costly if tasks you currently do yourself (such as minor repairs, painting or house cleaning) need to be contracted out. An aging home may need more frequent repairs and upkeep, too, compounding the issue.
While past generations may have paid off their mortgages before they retired, Experian data found that the average baby boomer (ages 60 to 77 in 2024) carried a $191,557 mortgage in 2023. Renting a home in retirement isn't likely to save you money in the long term, either; rents typically increase with the cost of living.
How to Save on Housing in Retirement
- Mind your mortgage. Your housing costs will drop when your mortgage is paid off, so make sure to factor your payoff date into your retirement planning. You might also consider refinancing to pay your mortgage off faster—or extend your timeline and reduce your monthly payments. Good news: It's possible to get a mortgage at any age.
- Consider downsizing. You may be able to sell your home at a profit, reduce or eliminate your mortgage and use any net proceeds to pad your retirement savings. A smaller, newer home may cost less in repairs and maintenance as well.
- Make major repairs or upgrades before you retire. You may have an easier time qualifying for a home equity loan or line of credit while you're still working, allowing you to make all those aging-in-place upgrades with less debt burden.
- Consider a reverse mortgage. If you own your home free and clear, a reverse mortgage pays you monthly or in a lump sum in exchange for home equity, giving you more flexibility to make big purchases or give your monthly retirement income a boost.
3. You May Still Carry Consumer Debt
According to data from Experian, baby boomers carried an average of $94,880 in debt in the third quarter of 2023. It's not a huge surprise that consumer debt is common among retirees. The same living expenses and lifestyle creep everyone grapples with before retirement can live on in later years.
You don't have to forgo credit cards and loans altogether in retirement, but you don't want consumer debt to spiral out of control. High interest rates on revolving credit can easily turn modest balances into sizable debt, and living on a fixed income can make it hard to generate the additional cash you need to pay your debts off.
How to Save on Consumer Debt in Retirement
- Be vigilant. If you're accumulating debt, figure out why. You may need to recalibrate spending or reevaluate your living expenses to live within your means.
- Budget for major expenses like buying a car or taking a big vacation, and make sure you have a plan for paying it off.
- Maintain your credit score. This will allow you to have access to lower interest rates and favorable terms when you need a loan or credit. You can check your FICO® Score☉ anytime with Experian.
- Pay off or refinance debt before you retire. If you're retired now and carry significant debt, work on a plan to pay it off.
4. You Want to Enjoy Traveling
Having the opportunity to travel is one of the best things about retirement. But if you don't plan your travel expenses carefully, you can easily deplete your retirement savings and wind up in financial straits.
How to Save on Travel in Retirement
- Plan carefully. Designating a portion of your monthly income (or total retirement savings) for travel may help you stay on budget, versus deciding to travel on a whim.
- Look for travel rewards cards. These can help you earn bonus miles you can use for free travel or deep discounts. You may also save money on foreign transaction fees.
- Leverage your flexibility. As a retiree, you may have the leisure to travel at non-peak times, choose less popular (and less expensive) airports or drive instead of flying.
- Consider money-saving opportunities. Teach English abroad, house sit or home swap: You may defray the cost of travel or even stay for free. If far-flung friends and family are amenable, visiting can be cheaper and more fun than staying at a hotel.
5. Taxes Are Forever
You may have stopped working, but you probably still have income. Income means one thing: income taxes. Tax rates don't change as you age, but your sources of income and potential deductions might. Here are a few tax facts you need to consider.
- Any distributions you take from a traditional IRA or 401(k) plan are taxable as ordinary income.
- You may be required to make taxable required minimum distributions from your traditional IRA or 401(k) retirement plans starting at age 73.
- Up to 85% of your Social Security retirement benefits may be taxed if your combined income (including your adjusted gross income, tax-exempt interest income and half of your Social Security benefits) exceeds $25,000 for an individual or $32,000 for a married couple filing jointly.
- If you've been making tax-deductible contributions to a 401(k), IRA or HSA, you may no longer be eligible to do so when you stop working and switch to Medicare coverage.
- Without regular paycheck withholding, you may need to make quarterly estimated tax payments throughout the year.
How to Save on Taxes in Retirement
- Start retirement tax planning now. Diversifying your retirement portfolio—for example, by adding a Roth account to the mix—can help you defuse a retirement tax bomb down the road.
- Find a tax advisor or retirement financial planner. This professional can help you make sense of your taxes, structure retirement distributions to minimize taxes and plan ahead for quarterly estimates if needed.
Frequently Asked Questions
Most expenses don't automatically decrease in retirement. In fact, many are likely to increase over time thanks to inflation. Health care and housing costs may grow as both you and your home require additional maintenance with age. Increased leisure time could lead you to spend more on travel or entertainment. Increased spending overall might cause debt, which can snowball if you aren't careful.
Your expenses are most likely to decrease when you make a deliberate plan to cut costs. Rein in your spending and monitor your finances frequently. Tax planning with the help of an advisor may help you keep your tax bill low.
To estimate your monthly retirement expenses, start by looking at your current monthly budget. Think about which expenses are likely to change when you're retired and which might remain the same. You can use your current expenses to create a realistic estimate for maintaining your lifestyle in retirement, or plug in alternative numbers to suss out how expenses might change in different scenarios.
Just looking for a quick reality check? Many financial advisors suggest using 80% of your current expenses as a rough estimate of what you'll spend in retirement. Also consider: The Bureau of Labor Statistics says the average household headed by a person age 65 or older spends $4,345 per month.
Some of the biggest expenses you'll face in retirement are inevitable: health care, housing, transportation, utilities and taxes, for example. Though you can't eliminate these expenses entirely, you may be able to manage costs by planning ahead. Think through your Medicare options and plan for non-Medicare expenses like dental and vision coverage. If you hope to stay in your home for the long term, energy-saving home improvements might help you keep utility costs down.
You might also look for ways to increase your income to offset expenses. Although you may not be keen on returning to work full time (after all, this is retirement), consider picking up part-time work or trying your hand at a side hustle.
The Bottom Line
Though some expenses are bound to increase during the course of your retirement, others (like travel) may taper off as you age. Building flexibility into your retirement plans can help you stay on track even if inflation, spending and unexpected costs pop up along the way.
Maintaining good credit in retirement can help ensure you have financing choices when you need to deal with rising (or surprising) costs. Free credit monitoring alerts you whenever there's a change to your credit file, so you can stay on top of your credit report and score, and be ready to meet financial challenges whenever they strike.