How does people’s spending change when they retire?

Household spending generally drops at retirement and then continues to decline throughout. Studies done by the Employee Benefit Research Institute and the Bureau of Labor Statistics show that retired household annual expenditures are around 80% of working household annual expenditures. Within retired households, consumption declines steadily with age, dropping to 50-65% of pre-retirement consumption later in life. Retirees spend less on food, housing, clothing, transportation, and entertainment, but more on healthcare. In addition, retirees do not need to save for retirement or pay Social Security and Medicare (FICA) taxes.

Average Annual Expenditures By Household
Average annual expenditures for older American households from 2014 survey.
Data comes from the 2014 Consumer Expenditure Survey analyzed here.

Healthcare Costs

Despite access to Medicare, households spend more on healthcare in retirement. Its coverage is not comprehensive, requiring for some to purchase supplemental Medicare coverage and/or long-term care insurance. Additional out-of-pocket expenses include drugs, hospital care, and extended stays at nursing homes. Healthcare costs make up 9% of spending for households in the 55-64 group, which increases to 16% of spending after 75.

Work-Related Expenses

Food, clothing, and transportation are all considered work-related expenses that decrease when someone leaves the workforce. The average 75+ household spends $10,000 annually on food, clothing, and transportation combined, as compared to $18,000 for a household of pre-retirees.

Housing Expenses

Housing expenses are also lower in retirement, driven by a decline in mortgage debt. On average, pre-retiree households spend $18,000 per year on housing, which declines to $13,000 for households aged-75 and older.

Savings & Taxes

Reaching retirement means that the portion of one’s income allocated towards retirement savings is no longer necessary. In addition, without wages, Social Security and Medicare (FICA) taxes are no longer due. Pension and Social Security contributions are on average $7,000 for a household of 55-64 year olds, as compared to $800 for households 75 and older.


Other expenditures include entertainment, alcohol, tobacco, personal care products and services, reading, education, and life insurance. Total consumption for households aged 55 to 64 averages at $9,000 per year, dropping to $7,000 for the 75+ households. Lower spending on entertainment is the biggest driver of this decline.

Use this data to plan ahead for retirement by looking at your spending today and evaluating whether your consumption will experience similar declines. Then compare your expected spending to sources of retirement income, such as pensions and Social Security. Spending gaps, where your expenses are greater than your income, can be filled by converting your retirement savings into income, as with income annuities.

One final caveat — you know better than anyone the kind of retirement you want. The data we’ve provided are just averages. If you plan to travel a lot, for example, make sure you factor that in.

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Our Retirement Planning Guide will help you get prepared for retirement no matter where you are in the process.