The Unexpected Truth About Expenses In Retirement...


It’s almost cavalier in a way. How some future retirees (let’s say 50 or older) nonchalantly proclaim that their expenses will be less in retirement. As if they’ve studied this topic over and over - they share concepts like the "U" shaped paradigm of spending in retirement. Higher at first, then less as they age, then higher at the end due to health care expenses. They talk about fewer dry cleaning bills and less expense for getting to work and back, etc. but many ignore the “new" expenses that might come their way.

(We’ll get to that in a few paragraphs.) My experience is that it’s easier for those contemplating retirement to sweep the subject of expenses under the nearest rug. Rate of return is not an emotional topic. Living live comfortably is.

So, with the goal of advising future retirees more realistically, a plethora of experts contemplate this question and all kinds of financial service organizations commission studies on this very topic. But, in the end, the question still stands.

Do expenses really go down in retirement?

Look, it’s kind of hard to say accurately. Much like my boys tell me they can’t predict the future - when I ask if they want to get coffee in 15 minutes, you’re no better at predicting the future. You’ve never experienced retirement so how can you possibly tell what will happen to you...

Let’s discuss this in the following manner. 1st, I’ll give you my overall assessment. 2nd, we’ll talk about how spending shifts in retirement on non-medical related expenses and 3rd, we’ll talk about medical costs in retirement.

My assessment is that you’ll be better off using a higher expense figure in your calculations, rather than the lower numbers that might look better in the retirement calculator. Using a more conservative figure will provide more flexibility in later years because you’ll spend less of your nest egg initially. The risk is not living life in a manner that pleases you, but the downside (outliving your dough) will be less likely.

(By the way, we’re not even touching inflation here. VIDEO: The Insidious Effects of Inflation - it’s less than 5 minutes, BE INFORMED.)

It may be more apropos to suggest that expenses change in retirement, but less accurate to suggest that they will be lower. Sure, your expenses getting to and from work will disappear and you may spend less money on dry cleaning; however, in retirement, you’ll find other ways to spend your money.

With most newly retirees clients, I see the following 3 similarities.

1) Retirees like to travel

2) Retirees pick up new hobbies

3) Retirees love to dote on their families…(mostly grandchildren!)

To be sure, traveling to exotic destinations, maybe even with your family in tow are wonderful ways to spend your years but these are optional. What about stuff that’s beyond your control? If you live in Illinois, you pay a ton of property taxes because our politicians have ruined what once was a great state. And what about your home? You may own it free and clear but, if you decide to stay there, you’re likely to incur higher home maintenance costs. The older your property, the most likely it is that you’ll have the local repairmen on speed dial. Not that I can do more than change a lightbulb; however, as you age you may lose the wherewithal to handle, what might have been easy to handle in your younger years.

I point all this out for the following reason: People who give this a thorough analysis are more informed, and, thus, more likely to spend accordingly. Sure, many retirees have a goal of spending less money but this isn’t always possible. A recent McKinsey study bears this out sharing that 32% of retirees expected to reduce their expenses, yet only 10% actually did.

A lot of this also has to do with your current level of spending and your level of affluence. According to J.P. Morgan:

"For lower-income households, there's less ability to reduce spending, since a larger percentage of their income is going to essentials," says Katherine Roy, chief retirement strategist at J.P. Morgan, who led the study by her Bank. Wealthier households have more discretionary income, so it's easier to trim in retirement.”

So there are many factors, most important of which may be medical costs.

Not only are health care costs and how retirees will pay for them going forward unknown and likely to change (i.e. Medicare), these costs rise at approximately double the rate of normal inflation. Genworth, the largest seller of long-term health insurance commissioned a study in 2013. The average cost of a private room in a nursing home was more than $83,000 per year. The Department of Health and Human Services says the “average stay is two and a half years. That means you could find yourself spending $210,000 for care for yourself or a loved one. Many people have long-term care insurance but, then again, many do not. It’s expensive and hard to qualify for. Plus you pay and pay and pay for something you truly hope you’ll never have to use - which is upsetting to people.

From Money Magazine:

"Health care will likely be your biggest expense during the golden years. It's obviously a tough number to nail down and one that will vary by person, but there are estimates out there. A 65-year-old, healthy couple can expect to spend $266,600 over the course of their retirement on Medicare premiums alone, according to HealthView Services. An estimate from Fidelity is a little less: $245,000. Neither include out-of-pocket expenses or long-term care costs.”

If changes are made to social security and medicare…(Read: we get less, not more)…the impact of medical costs might be even more profound.

In closing, I’d like to share a final thought with you. My purpose here isn’t to scare you and cause you to go live in a hole somewhere where your credit cards don’t work. I don’t even want my children to go somewhere where MY credit cards don’t work. No, my purpose is to inform and urge you to consider this element of your plan more carefully.

There are many elements of a comprehensive retirement plan. Level of savings, assumed rates of return, years to retirement, etc. I just feel that people are more casual when it comes to this part of the plan. Anecdotally, I think it’s because many don’t want to confront the possibility that they may not live out their years in a manner that’s consistent or preferable to them. Similar to the quote “denial isn’t just a river in Egypt”…

Being uniformed is not a strategy…

That’s just the way it works.

Required disclosures: Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and (Strataxa Retirement Advisors, LLC) are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents.

Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional.


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Darryl Rosen MBA, RICP

Darryl Rosen is the founder of Rose Advisory Group, and operates www.RealRetirementAdvice.com as a way to help others create their ideal retirement. He is obsessed with helping people create safety, simplicity and strength in their financial future. Darryl’s clients enjoy his straight-forward, plain-spoken guidance, strategies to minimize taxes and ability to generate investment returns, while minimizing risk so his clients can sleep at night! Darryl is licensed to provide guidance on securities and insurance solutions and has achieved the highly desired Retirement Income Certified Professional (RICP) designation.

Darryl is the creator of the well-known SECURiMENT™ Retirement Planning Method. A simple to understand and implement planning method that demystifies retirement planning so that people can take action. Visit Rose Advisory Group to learn more! 

Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor.  BCM and (Rose Advisory Group) are independent of each other.   Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Information provided is not intended as tax or legal advice, and should not be relied on as such.  You are encouraged to seek tax or legal advice from an independent professional.