Personal Finance

The 10 Most Common Ways Americans Plan to Spend Their Money in Retirement

Rich Duprey

Published: October 30, 2024 9:43 am

Last Updated: November 6, 2024 6:47 am

While most people focus on the dollar amount they want to retire with, that is putting the cart before the horse. To understand how much you need to save, you first need to figure out how much you are going to spend in retirement.

The rule of thumb for retirement says to plan on needing around 80% of what you’re spending pre-retirement. Of course, every individual’s needs will be different. Across a broad swath of the population, people have pretty similar ideas on what categories they will be spending their money on.

Nationwide Financial had The Harris Poll survey 1,831 adult Americans to get a sense of what each generation expected would consume the largest percentage of their income after they retired. Here’s a look at 10 budget categories where retirees believe they are likely to spend more.

Why is 24/7 Wall St. covering this?

• The cost of living continues going up, meaning Americans saving for retirement need a sense of where their money will be going after quitting the rat race.
• Nationwide Financial surveyed over 1,800 people of all ages to understand what they expected their retirement income to be spent on. 
• While none of the categories are surprising, where different expenses land on the list may raise some eyebrows.
• Also: Are You On Track to Retire? Take This Quiz and Find Out ^(Sponsored) 

10. Investing

It pays to never stop investing, even in retirement. While your portfolio won’t be nearly as aggressive as it was when you were younger, continuing to put money into the market makes sense. Retirees anticipate spending 4% of their money on investing activities.

9. Debt

Entering your retirement years debt-free would be nice, but realistically there will still be loans and credit cards to pay off. It was at the bottom of the list, but some retirees still expect to be paying on their student loans. Overall, though, about 4% of a retiree’s income will be spent on servicing debt.

8. Entertainment

Hey, that’s what retirement is all about, right? Living it up a little while you have the time, but don’t overdo it. Entertainment costs are expected to amount to 6% of retiree income.

7. Transportation

While transportation expenses will decline in retirement as the daily commute to work goes away, not all such costs will disappear. Spending on gas should drop, but vehicle maintenance and repair expenses may rise as vehicles age, which means retirees may spend 6% of their income just getting around.

6. Savings

This may fall into one of the surprising categories as you might expect saving money might stop once you get your gold watch, but investing, it’s smart to keep putting money away. Americans believe they will spend as much as 7% of their retirement income on savings.

5. Vacation

The only thing shocking about spending on vacation costs in retirement is how far down the list it comes. When most people talk about retirement, it includes all the places they want to visit that they didn’t have time to see when they were working. Retirees are budgeting about 7% of their income. Maybe that’s what the savings are for.

4. Healthcare costs

No one is surprised that healthcare costs will be a big expense in retirement. Americans expect 10% of their income will go to healthcare, but it could be more. Fidelity Investments found 65-year olds retiring in 2024 can expect to pay $165,000 in healthcare over their retirement, a 5% increase over last year.

3. Groceries

Americans expect to pay 16% of their retirement income on groceries, but with eating at home costs surging 25% over the last four years, that may be low. Eating out is even worse, though, with costs up 28%.

2. Housing

Similar to transportation costs, while many retirees may have paid off their mortgages, there is still the general upkeep and maintenance on a home. Others will still have a mortgage payment in retirement or will rent, which is now prohibitively expensive. Americans expect to pay another 16% of their income in retirement on housing.

1. Monthly bills

The biggest expense of all will be just the basics of homeownership. The Nationwide Financial survey found retirees expect to pay 18% of their income on things like utilities and the cable bill.

Key takeaway

Because retirement is considered a time of leisure, discretionary expenses like vacation and entertainment will consume 30% of a retiree’s income. But it’s not the largest category. That goes to essential costs like healthcare, groceries, and monthly bills. They will account for 70% of a retiree’s total income. Plan accordingly.