February 2, 2021

How Spending Changes After Retirement


Spending habits and needs do change after retirement. There is a natural realignment of what is needed and what no longer matters (like clothes for work. But, a more important question is, "Does spending drop after retirement?" That answer is not quite so simple. I would suggest that spending can drop after retirement, and for most folks it does. But, more to the point, spending shifts. It changes depending on what stage of retirement you are in.

During the first period of retirement (maybe lasting 10 years or so), it is quite possible that your overall expenditures may increase. Why? If you are like many retirees you suddenly allow yourself (before or after Covid) to travel to see family, jet off to Europe or New Zealand, or take a Caribbean cruise.

If you are not moving right after you leave the work world, it is not uncommon to sink money into your home, to make it an oasis and more comfortable. If 2020 taught us anything, it is a home that feels warm and inviting is an important part of staying sane during a never-ending lockdown. You may decide to eat away from home more often, replace an aging car, get an RV (!), or make other discretionary purchases. 

The point is, during the first stage of retirement it is not uncommon for expenses to actually increase in certain categories.

During the second phase, you will probably have gotten a lot of the travel bug out of your system and find health concerns and expenses beginning their inevitable rise. Your spending with shift more toward needs and less toward wants. If you didn't do this in earlier years, remodeling parts of your home to make it safer and more accessible are likely expenses. With more time at home, what you spend on hobbies and entertainment often increases.

Finally, your third phase will probably consist of personal maintenance type expenses. Depending on the arrangements you have made, your expenses will shift again, with most discretionary costs gone from your budget. Home nursing care, or all that comes with living in a retirement community will appear as regular costs.

The national average for retired households shows a 20% drop in spending, though because that is an average, there were many who showed an increase. Betty and I had a more substantial decline in expenses- closer to 30%, but where the money went ceratinly shifted over the last twenty years. 

Importantly, the average expenses also showed a decline to match the income drop. For those between 65 and 75 the reduction was 19%. For those who make it into their 90s, the spending drop was 52%.

So, where do the shifts occur?

Work-related expenses, including gas, work clothing, and meals

- Housing expenses. Mortgages begin to be paid off, downsizing might mean lower taxes and maintenance costs.

- Health care will take an increasingly larger share of your budget as you age.

- Entertainment. As we age we are less likely to spend money on movies, plays, or concerts because declining health keeps us closer to home. But, that may be offset by more money spend on home options: Netflix, Prime, High Speed Internet, bigger TVs, and so forth. Hobby costs can also rise as we spend more time at home.

- Transportation costs tend to drop as we age. The need for two cars usually disappears at some point. No commuting means lower gas and upkeep costs.

- Gifts and donations often see an increase. Money spent on grandchildren, more generous donations to religious, civic organizations, and volunteer causes are often the norm.

Occasionally I will receive a question from a reader wondering if a budget is still needed after retirement. My answer is always the same: absolutely. But, I will add the same information that is included in this post: that budgeting shifts and adjusts depending upon your circumstances and the stage of retirement you find yourself. 

Is it "permissible" spend at a somewhat higher level when you first retire? I believe it is OK, if you accept that will mean a lower rate of withdrawal from your resources later on. During the first decade of our retirement, Betty and I set a withdrawal rate of between 4 and 5% of our accounts. Though not sustainable for too many years, it was appropriate for us at that stage of our journey. 

In the last nine years that withdrawal rate has dropped to just under 3%, or below the rate of growth of our retirement accounts as our needs and wants have undergone shifts. With proper planning and insurance coverage, I expect that rate of draw-down to be consistent for the foreseeable future. But, if not, we will adjust.

Of course, there are unforeseen situations, like catastrophic illness expenses or a major economic downturn that can make mincemeat of even the best-laid plans. The fear of running out of money remains one of the top three fears before retirement.

The good news is that national statistics show such a fate is an unlikely scenario, unless you throw all caution to the wind, abandon the power of a budget to keep you on track and decide "it will all work itself out." 

Retirement is not a static state. If you accept that how you spend your resources changes over time to match the natural rhythm of life, you are more likely to enjoy the journey.


  1. Your final paragraph sums it up nicely, Bob. Accepting that financial expenditures ebb and flow during different stages of life and understanding how they will do so will allow us to plan accordingly. It's intriguing how certain choices in life impact that ebb and flow. Although we married in our early 20's (typical, I believe, for our generation), Alan and I chose not to have children until we were in our later 30's. That was definitely the right choice for us but we retired (early) when our younger child was still in high school. While some of our friends were relaxing with their grandchildren, we were still traveling to sporting events, teaching a teenager to drive and paying for college for our older child. Add to that mix the fact that we were paying out of pocket for health insurance, our spending increased in retirement, but not for the same reasons as other retirees. Admittedly, life does throw curves now and then, but substantial planning and budgeting allows us to weather the financial ebb and flow to the best of our ability.

    1. We are rather adaptable creatures. When given half a chance, we usually figure out a work around. You and Alan are good examples: your decision regarding children required certain lifestyle choices. You made then, happily, I gather, and moved on.

  2. My husband and I fell into the category of not really planning for retirement other than we each had a retirement fund that we pretty much ignored, had them set on auto-pilot so to speak. We loved our work and didn't foresee a time when we'd quit. Ya, I know, naive, stupid. Put whatever label you want on it but facts are facts. Then a catastrophic illness took that option off the table for the last 12 1/2 years of my husband's life, and mine, too, has his primary caregiver. Fortunately we had enough assets that I could sell to add to our forced retirement funds---two houses, 9 pick up trucks, 4 pieces of heavy equipment including a street sweeper and two barns full of antiques that got auctioned off. Built a wheelchair friendly house and paid it off in 10 years. Financially we turned out okay but it was tough going in the few years after my husband's massive stroke and I wouldn't recommend anyone take a page out of our book and not REALLY plan for retirement, factoring in all the what-ifs that we didn't do.

    1. I doubt anyone could have planned for what befell you and Don and what it forced you two to do. We should make plans for "normal" and a few curveballs. To continue the baseball metaphor, The illness came out of left field.

      Importantly, you found a way to move forward financially by using "hidden in plain sight" resources (vehicles, antiques, etc.) Paying off a modified house in 10 years is no small feat.

      As an avid reader of your blog, I know you found your footing after Don's unexpected and early death. It was not easy, but it certainly seems you are in a good place and very active.

  3. Dear Bob, liked your article, because it's focused on real people.

    Way too many retirement articles have a covert (and very nasty) agenda - as in, you'd better have 500k stashed away, because if ya don't, you messed up...luzer (neh neh neh).

    1. The new figure I see bandied around is $2 million is required for a decent retirement. That is simply wrong, on so many levels.

  4. We find that in retirement we actually have more available funds to spend than we had while we were working. Our income is a little less than half of what it was when we were working but our taxes are way down and not having to save for retirement sure frees up a lot of cash, not to mention having the house paid for and the children grown and gone.

    As for budgeting I've never maintained a formal budget but rather I made sure all the bills were paid (which included retirement savings before we retired) and whatever was left over we decided how we would spend it based on our priorities. That said I kept a very close eye on spending and still do but certainly there was never so much for travel and so much for clothes etc. We just spent with the knowledge that whatever was spent on one thing wasn't available for another and when the money was gone we stopped spending. In retirement that's still what we do.

    Of course now that we are living on our retirement savings we can essentially set our own income level. When we first retired our financial adviser asked us how much we needed to live on and I had no idea I'd bet many people feel this way and I think this leads to a lot of underspending in retirement, especially in the early and most healthy years. Our adviser may have been a bit surprised at my answer but in the end she set us up with a tax efficient withdrawal strategy as a place to start and said we could adjust as we found necessary. As was our usual practice we adjusted to whatever our after tax income was and away we went.

    As it turns out it feels like we have more money to spend now than than we did before and if we need a little extra for a trip or something we are able to pay for that out of the retirement savings. As I have said many times before "If I didn't save it so I could spend it then why did I save it?"

    After 6 years of retirement, and some good investment returns, we still have about the same amount of money in our retirement savings as when we started. Investment returns can and will change but we have put off claiming our Social Security pensions until age 70 which will give us the maximum guaranteed inflation indexed monthly cashflow. If we run out of retirement savings (which at the rate we are going seems unlikely) then at the very least we'll have the maximum Social Security coming in every month for the rest of our lives.

    As I posted a a little while ago on your blog Bob... "For most retirees the financial side is the one that pre-retirement they worry about the most but once retired they find it is not usually the biggest concern. As long as you gave at least some thought to your retirement financials during your working life you should be fine, it's the non-financial things that will make or break having a satisfying retirement. Finding meaningful things to do, family, maintaining relationships, staying as healthy as possible, these are the things that become top of mind in retirement."

    1. A solid summary of my point, David.

      We have more money in our retirement accounts than we did 20 years ago when the paychecks stopped.

      Frsnkly, if the IRS didn't force us to withdraw a certain RMD each year, I would likely only require half as much to live our lifestyle.

  5. We're still at the stage of spending more on trav... oops, no we're not, but we plan to again as soon as we can.

    1. I still maintain a vacation fund, even though it has been basically dormant for months. But, that will change.

  6. I think that it is amazing how much less we are spending since Covid hit – we only do take out for food, and most take out is less than $25.00. And honestly what we fix at home is usually better than the take out. So maybe I spend a little more on food, but not much.

    And no movies and popcorn – even though we always did senior fees and Harkins popcorn and drink deals – that is all gone. We have maybe rented 3 movies – there is so much to watch, you don’t need to pay for movies. And we have not really had much done at the house because we did not want outsiders in our home – only the usual maintenance thing – we did have the outside painted, but that had been planned. So even thought we have the two houses – they are both paid for – and there is the month to month cost of just taking care of utilities, etc, this has been a very low priced year. It did allow us to contribute more to church and some charities without really having to pick and choose as we might have in the past – so that was good.

    It will be interesting to see what happens when things open up a bit more. It will be a while before I will feel comfortable going anywhere that has a group of people. I love being able to go to church in my family room every Sunday and go to special things at the church on YouTube. I know that is not “community” but it is safer for us.

    I am not finding that I really miss eating out – at first I did because I am a lazy cook, but I have found things that I do really well and that we really like, and just stick to those – that’s what I do when we go out too, so no different – I just have to fix them.

    1. Betty was wondering this morning about all the dresses she has in a closet. Will there be a time when people dress up again to go to a concert or show, or will Covid have changed us all permanently into casual/comfortable creatures?

      We do miss sit-down dining out, though we never did that more than once a week pre-pandemic. It was a special treat and we will start up again when able. Our grocery bill has dropped as leftovers and days when all we want is cheese and crackers or a salad for dinner have become more common.

  7. Hey Bob! I appreciate hearing this because Thom and I are not yet fully retired and although we are budgeting, it is nice to hear how others have succeeded (or not) when it comes to finances. Of course, what you suggest is really what I call "rightsizing" and we have been doing our form of that for about 10 years now. It has helped us get clear about how and when to spend money (or not) and how to make sure when we do spend it, it is on things that really matter. But because we haven't done it yet, not sure about the phases you suggest...I just know my travel budget is growing and I'm very anxious to start spending it. Still waiting for our vaccines! ~Kathy

    1. WE always lived beneath our means to enable us to save enough to handle an earlier-than-expected retirement. With expenses fewer now. we are living on about 60% of pre-pandemic days, with a lot of that drop-off coming from travel and entertainment. When we can safely travel again there will be a sizeable bump in our expenses, at least for awhile.

      As we are well into our second phase of retirement (20 years this June), a major share of our travel wants and things like RV travel have already occurred. There are a few trips left on the horizon, but this middle part of retirement is more about being comfortable at home and with family, while still physically able to get up and go when the urge hots.

  8. Two million? Wow! We would have been working a job until death and still not made it.
    Our retirement nest egg has been steady for the last six years 1/2 Ira 1/2 investments. We have lived off of my husband’s pension entirely, until this year. Then, last year we decided to move “home”. We are building a house- while living in a fully paid for house. We know the investments will be back in the funds after we sell our current house, but it is nerve racking to see those numbers go down. We finally sat and talked it through. What is that money for if not for these types of things? Sounds logical, doesn’t it? It has given us something positive to concentrate on in these COVID days.
    We still add monthly to the travel fund and have a very fat “eating out” envelope.
    I anticipate a spending spree / travel spree after we are settled in my husband’s hometown. Then it will calm.
    Every age has been my favorite. This space though- planning in between - has been challenging and mindful.
    Now I am planning a non profit to help people get through paperwork to become legal....want to join me? I am EXCITED!

    1. Your energy and enthusiasm are inspiring! Starting a non-profit to help those wanting a legal path to citizenship is a very worthy goal.

      After so long, I anticipate a major uptick in travel and entertainment spending for many of us after enough have had their two shots.

      Your logic for spending on things that are important is one I am finally beginning to accept. I have spent most of my life playing things close to my financial vest. But, after the Covid wake-up call, we are moving forward with too long delayed remodeling and preparing our home for residency longer than we first expected.

  9. We have lived a zero-based budget life since 1987 when our world was crashing via the tax law changes that nearly bankrupted us. Our lifestyle had to change. So, pay the bills first, pay the savings account, add more to paydown debt, buy groceries, and then there may or may not be any $ left. In 6y we paid off all but our home, maxed out retirement contributions and breathed a deep sigh. Forward 2010 and we had 2 paid off homes. We lived off 1 income, saving 50% of our income.

    I retired July 2019 and had big plans for 2020. Jokes' on me ;-) 3 cancelled celebration trips and 4 concerts.

    So, I really can't speak to how spending changes in retirement. We've done some home improvement, hubster works-from-home (still loves his work).

    I know we saved more than enough for a comfortable retirement with plenty of great travel. I'm ready to test it out!

    Great discussions everyone :-)

    1. You and hubby have done a praise-worthy job, Elle, even in the face of problems that many of us have never had to deal with. By putting your priorities in order, look what you have accomplished. Delayed gratification is something too few in our culture practice, putting what we want now ahead of what we need.

      Feeling confident in what you have saved for retirement is something well worth celebrating.

  10. Our expenses have changed quite a bit during this Covid mess, but I do hope to travel more before we get to the point where we can't or don't want to. We've done some lovely trips but my bucket list still has quite a few on it.

    Like others, I miss eating out once in a while and have gotten a bit tired of cooking. And I have always loved clothes and buying a few things to update seasonally. But where am I wearing them now? It just doesn't make much sense to buy more. So here we sit. I get my second vaccine shot tomorrow, but I think our world has changed in some profound ways, and I don't presume to know what the new normal will look like. But so far it seems to cost quite a bit less.

    1. Congrats on getting your second shot so soon. That is a major step forward.

      I have never been all that interested in clothing. I have some sweaters that are probably 15 years old. I finally replaced two of them a few months ago just because I needed something different in my life after 8 months of Covid.

      I agree that the world has changed in profound ways. Whether those changes are good, bad, or a mixture only time will tell. But, absolutely, our expenses have moved downward this past (almost) year.

  11. We order meal-prep kits and are enjoying the variety they provide. Take out once a week or so from our favorite Thai place. Our gas expenses are much lower, of course, and I am enjoying not having to dress up. We have a travel account and it's quite plump right now, so we'll probably do another few trips once it's safe to travel.

    1. I hadn't really thought about meal-prep kits. That might be a nice change-of-pace for us. I go out and pick up something once a week for dinner, but that still leaves a lot of menu planning and shopping. Having the ingredients and recipe arrive on our doorstep every once in a while sounds nice. Thanks for the idea, Linda.


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