Leading up to retirement, you can’t help but wonder what is the biggest expense for retirees. When you retire, you would expect your expenditures to drastically decrease, in fact, that is the general consensus on what should happen. You may cut some work-related costs such as clothing and transportation. However, this is not necessarily a forgone conclusion, without proper planning. The reason for this is other necessities, such as medical bills or travel expenses for leisure activities, come into the picture. In this article, we will talk about the biggest expenses for retirees and what you can do about them.
Retirement can mean saying goodbye to income taxes and reducing some transport costs, but numerous bills still need to be taken care of. To help alleviate some of this financial pressure for you, we have created a list of the five major expenses that retirees face and how you can minimize them:
Housing And Mortgages
Housing is undoubtedly the most expensive burden for retirees, consuming almost a third of their annual expenditures. This includes mortgage payments, rent, property taxes, insurance premiums, maintenance costs, and repairs. All in all, it is said that an average retiree household will allocate up to 35% of its total expenditure toward housing-related costs.
Between 1990 and 2015, the percentage of the 55-64-year-olds owning homes drastically dropped from 70 to 47 percent, according to Statistics provided by the Australian Bureau of Statistics. This was a relatively significant drop over the 25 years, indicating that home ownership among those in this age range has become increasingly difficult. This has only increased in more recent times with property prices rising out of reach for many.
Before completely retiring, one of the wisest moves you can make is paying off your mortgage, thus building equity, which will help you lower retirement living costs. This strategy provides more space to manage any extra expenses later on.
If you have yet to do this before retiring, you can choose to downsize your home instead. You’ll need to examine what your home is worth thoroughly and include an estimation of future expenses. Research can reveal the actual value of your home and the cost of closing out the mortgage if required so that you can make an informed choice; however, it’s possible that the final payment will not be what you initially expected when downsizing You might also find that the capital realised from downsizing is not as great as you thought if you buy in a better suburb or purchase a newer more expensive apartment.
As a retiree, one of the biggest benefits is undoubtedly the reduction in commuting expenses; however, you may have noticed that not all transportation costs necessarily decrease as well. You should actively track the fuel costs, insurance payments, vehicle rental, leases, and maintenance.
Staying on top of your car insurance costs is one of the easiest and most effective ways to save money yearly.
Healthcare And Medications
Retirees face healthcare as one of the most significant expenses, coming in third on the list of biggest expenditures. This includes not only health insurance but also medical services, necessary supplies, and medications. Even with Australia’s Medicare system providing some form of publicly funded coverage, much of the expenses can be out-of-pocket. This is especially true when more severe health issues are present, mostly because some services may not be fully provided under the public system especially if you want to choose your specialist or avoid long wait lists.
Including out-of-pocket costs, which might not be covered by the medical system, in your budget is essential. It is also wise to learn about the healthcare system, what it covers, and the available options. In addition to preventive care, such as regular physical activity and a nutritious diet, you can be proactive about your health to reduce healthcare-associated costs. Acquiring a thorough understanding of the healthcare system can help you make informed decisions about your healthcare needs and prepare for unexpected costs.
Food And Dining Out
Food is an essential part of life and a large portion of retiree spending. This includes groceries, snacks, and meals purchased to be enjoyed at home and eating out in restaurants. It has been estimated that nearly 40% of the money spent by retirees goes towards dining out at various establishments.
Coupons, lists, store brands, senior discounts, and using credit cards or app rewards are effective tactics that can help you save money while grocery shopping. Additionally, taking advantage of deals targeting seniors is an additional modest savings option, as well as using a credit card with strong cash back or points rather than paying with cash straight from pocket.
Retirement success should focus on a balanced approach, especially when dining out with friends and having a good time. Staying mindful of your budget while not sacrificing the fun of building relationships is vital. Money-saving and remaining connected should be your goals to enjoy your golden years truly.
Retiree households typically allocate a significant portion of their budget to utilities, the fifth-largest expense. Payments for these bills, including gas, electricity, water, phone, and Internet services, can rapidly become expensive if you have not planned for them.
You can make a big difference in lowering your utility bills by taking simple steps such as using energy-saving equipment. You can use programmable thermostats that allow you to adjust the temperature in your home according to your daily schedule, reducing energy consumption when no one is home. Additionally, some bulbs use significantly less electricity than traditional incandescent bulbs, saving electricity costs over time.
So, What Is The Biggest Expense For Retirees?
We discussed the biggest expense for retirees, and housing tops this category. Undoubtedly, housing is the most costly and significant expense, representing about one-third of a retiree’s annual expenses. Fortunately, you have the option to keep the costs down, such as by downsizing into a smaller home. On the other hand, other expenses such as transportation, healthcare, food, and utilities also play a role in your expenses, and we have looked at how they can affect your finances and what you can do about them.
Retiring may feel like a relief from life’s everyday hustle and bustle, but it can also bring some unexpected financial stress. To maximize your retirement savings, it is essential to understand your expenses and how these various costs impact your finances. This way, you can plan accordingly and make informed decisions about how best to spend your hard-earned money in retirement.