Housing, health care top list of expenses for retirees

One of the biggest questions workers have when trying to figure out how much to save for retirement is what they can expect to spend on everyday expenses when they stop working.

Pre-retirees can count on prices for just about everything, from home-related costs to health care expenses, going up by the time they reach retirement, but just how much they can expect to spend is difficult to guess. In 2020, the average American over the age of 65 spent $47,579 annually on living expenses, according to statistics compiled by Annuity.org.

Housing accounts for a large portion of that annual spending, with retirees spending more than $17,000 per year on average for housing expenses. In 2019, 36% of older homeowners spent at least one-third of their income on housing compared with 76% of renters. Taking housing costs into account during the planning phase will be important as more than three-quarters of respondents to an AARP study indicated they would like to remain in their current community for as long as possible and a similar percentage want to remain in their current home.

Health care costs account for another large chunk of spending in retirement. While spending overall tends to drop after retirement, retirees understandably spend more on health care and health insurance than their working counterparts. Average health care spending in 2020 was:

• $6,668 for retirees, and
• $4,762 for working Americans

To provide for themselves during retirement, pre-retirees are increasingly taking matters into their own hands. More than 80% of working Americans plan to primarily fund their retirement through self-funded savings, while one in three Baby Boomers rely on Social Security as their primary income. Among non-retirees, 73% are worried they won’t receive any Social Security benefits by the time they retire.

Will Americans be living the dream — or a nightmare — in retirement?

However, 22% of Americans have less than $5,000 saved for retirement and 15% have no retirement savings whatsoever, according to the compiled statistics. The good news: Younger Americans appear to be increasingly invested in saving for retirement. Gen Z is investing in retirement at a higher rate than millennials did at the same age. Nearly 16% of Gen Z participate in a 401(k) with an average balance of $4,500, while only 11.4% of millennials had a 401(k) with an average balance of $2,000 at the same age. Gen Z savers who have contributed to a defined contribution plan for five years have an average balance of over $23,900 saved.

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics.