How to help retirees anticipate expenses in retirement

April 17, 2024

Retired husband and wife in a kitchen

Understandably, financial professionals and their clients often focus on potential returns and projected income in retirement. In addition to leveraging traditional investments and employer-sponsored plans, clients are encouraged to strategize their timing for claiming Social Security.

A properly designed retirement strategy can help individuals maximize their potential retirement income. But as important as it is to anticipate the money coming in, investors also need to consider how much is going out.

The good news? Most retirees (57%) say their expenses are either in line with their expectations or lower than anticipated, according to LIMRA. While promising, their study found that spending levels exceeded pre-retirement expectations for nearly one-quarter (24%) of respondents.1

How can you help those approaching retirement to calculate their retirement expenses more accurately? Looking at the recent spending habits of others can be a start.

Common expenses in retirement

The latest consumer expenditure survey released by the U.S. Bureau of Labor Statistics shows how inflation has impacted the average household.

The data show a narrow margin between expenses and income for those over age 65. Annual income in this age category averaged $60,359, and expenses averaged $57,818 — a difference of only $2,541.2 Compare that to pre-pandemic spending when retirees earned less yet still had $5,436 remaining at the end of the year.3 

It’s easy to see that retirees are spending more today than a few years ago. But where is that money going?


Housing expenditures make up the largest chunk of expenses and had an annual increase of 7.4%, according to the latest data.4 Those over age 65 spent an average of $20,362 on housing, taking up more than one-third of their income.2 That’s about $3,000 more than before the pandemic.3 


Overall, transportation expenditures rose by more than 12% year over year.4 Retirees in the 65+ age group spent $8,172 on vehicles, fuel, maintenance and other transportation expenses.2 Four years earlier, they spent only $7,492.3 


Many retirees recall the days when they could go to the store and fill a bag of groceries for less than $25. Those days are gone. Spending on food increased 12.7% in 2022, on top of a 13.4% increase in 2021.4 On average, a retiree over age 65 spent $7,306 on food in 2022 compared to $6,599 before the pandemic.2 3

There’s more. Much more. If the past few years of volatile consumer goods pricing are any indication, it may get even more difficult to anticipate expenses in retirement. But financial professionals can take this opportunity to help clients mitigate inflation risks and demonstrate their value.

Tips to help increase guaranteed income sources

Inflation and consumer goods pricing are out of anyone’s control. While retirees can choose to cut back on spending, certain expenses like housing, food and transportation may rise despite their efforts. Since there’s little retirees can do to curb rising costs, they’ll need to focus their efforts on trying to increase income. 

In light of inflation risks, the age-old conversation about maximizing Social Security benefits is more important than ever. Consider that waiting only a few years to claim benefits could result in hundreds of dollars in extra income each month.5 A retiree who receives an extra $300 in Social Security benefits each month will end up with $3,600 more at the end of the year. Carried out over 20 years, that’s $72,000 in extra potential income.

Such a boost in income could make a major difference. Consider that retirees who don’t have enough income to cover their basic living expenses most often withdraw from their savings to make up the difference, according to LIMRA.1 Over the long run, such a practice could deplete their savings altogether.

Anticipating how much someone will spend in retirement is no easy feat, but many may not have taken the time to track their present spending habits. Financial professionals may need to encourage their clients to go back to the basics to truly understand where and how their money is being spent with an updated budget. Tracking spending over time now can help them more accurately determine potential spending in retirement.

In the meantime, encourage clients to maximize employer-sponsored retirement plan contributions to take advantage of any employer matches. 

  • Take a look at Roth IRAs and consider whether it’s time to take advantage of catch-up contributions.
  • Start a conversation about potential guaranteed income streams like annuities to potentially help bridge the gap between retirement and claiming Social Security benefits.

Small steps may make a big difference.

1 LIMRA, 2023 Retirement Investors—Behaviors, Attitudes, and Financial Situations, 2023
2 U.S. Bureau of Labor Statistics, 2022 Consumer Expenditure Survey, 2023, September
3 U.S. Bureau of Labor Statistics, 2019 Consumer Expenditure Survey, 2020, September
4 U.S. Bureau of Labor Statistics, Consumer Expenditures Press Release—2022, 2023, September 8
5 Social Security Administration, When to Start Receiving Retirement Benefits, 2023, January