This is by far the No. 1 expense for Americans of retirement age — and the pros say it shouldn’t be

Americans ages 65 and older spent nearly $1,000 more a month last year than they did just five years earlier, according to government data.

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Average monthly expenses for those over 65, including rent, groceries and health care, hover around $4,345, according to the latest government data. In 2016, Americans of retirement age got away with spending nearly a thousand dollars less at $3,564. But, with inflation only recently starting to cool off from its nearly 40-year high this summer, financial professionals say older Americans may soon be preparing to further tighten up their spending habits when planning for the future.

“To successfully retire, you need a plan and strategy that encompasses a multitude of factors,” says Anthony Colancecco, a financial advisor at Ballentine Capital Advisors in Greenville, South Carolina. “You’ll need to consider your health, your income, expenses, inflation and other financial goals, as well as whether you have sufficient resources and are confident in your understanding of what retirement entails.” (Looking for a financial planner? This tool can help you find a planner that fits your needs.)

It’s going to be tough, and you’ll probably “have to do things differently,” says Peter T. Palion, an East Norwich councilor based in New York. Here are some ways to cut spending in retirement:

Pay off your mortgage before you retire

About half of retirees now have mortgages, the Joint Center for Housing Studies at Harvard has revealed; in 1990, it was only about 1 in 4. And for older families, housing tends to be the largest expense by average dollar amount and as a share of the household budget for older families, the Bureau has revealed. of Labor Statistics.

This is a problem for those looking to retire on a budget for one important reason: housing is expensive. Of course, paying off the mortgage doesn’t free up all of your home costs (you’ll still need insurance, taxes, and more), but it can alleviate the biggest chunk.

“Owning your own home will definitely reduce living expenses,” says Alana Benson, investment spokesperson for NerdWallet, though she also adds, “aggressively paying off your mortgage can make pre-retirement saving or investing difficult.”

Consider moving to a lower taxed and less expensive state (or country).

Benson says one of the best ways to combat rising consumer prices is to move to a more affordable location, “in a state with lower taxes … and a lower cost of living.” That’s because how much money “you’ll need for retirement will depend entirely on your lifestyle and living expenses,” he adds.

States like Alabama and Louisiana have average state tax rates of 0.41% and 0.55%, respectively, and their average home values ​​are also relatively low at $209,000 and $217,296, according to a Bankrate survey. At the other end of the spectrum, states like New Jersey, which has an average tax rate of 2.49% and a home price of $484,393, carry monthly withdrawals that can quickly eat into an individual retiree’s cash flow.

Palion of Master Plan Advisory says it’s especially challenging for singles in high-tax regions of the country. “A single individual might be more likely to squeeze into a studio apartment, than a couple who would occupy a bedroom, for example,” says Palion. However, he adds that “a couple, as opposed to an individual, does not use twice as many utilities”.

Before making the decision to move, “which is an option and not off the table,” says Colancecco, retirees or those planning to retire early should first budget together their total monthly expenses. “For example, if I have a gym membership and a Peloton, do I need both? If I like to go out to dinner twice a week, should I cut it down to once? During times when inflation is at an all-time high, we have to make short-term decisions to achieve long-term results,” he explains.

Cut down on transport costs

After housing, transportation is often the second most expensive thing the age group 65 and over spends money on, BLS data reveals. If you no longer go to the office and have a partner at home, can you all get off in one car? You can pay for your car, so you’re only paying for gas, insurance and maintenance? Could you get rid of a car altogether?

Consider this: The average individual in this age group spent $1,396 on fuel in 2021, according to BLS data. This was before gasoline prices posted a year-over-year increase of 17.5%, as of October 2022. Furthermore, the cost of new vehicles also increased by 8.4% in the last year, with prices of used cars up 2%.

Get smart about food costs

The price of food at home has risen by 12.4% in the past 12 months, government data shows. Palion says people should look at this as an opportunity to make smart spending cuts. “Switching from a food brand to a store brand” is one of the best ways to cut costs, she says, adding that “buying more wholesale at stores like Costco or BJ’s [Wholesale Club]and essentially looking for cheaper alternatives,” is another. Indeed, research by MagnifyMoney found that bulk purchases can save an average of 25% on common household items.

Evaluate your usage and monthly utility bill

Although headline inflation has started to ease since its 40-year peak of 9.2% in June, consumer prices in October across the country remained relatively high at 7.7% compared with 12 months earlier, according to data. BLS data. Data shows that energy services, including electricity and gas, increased by 15.6% year-on-year. With probably little scope for reducing monthly expenses for these people, he adds that they can reduce their bills by lowering their “heating in the winter, perhaps incrementally from 69 to 66 [degrees].”

Use your HSA

Last year, the average adult over 65 spent $7,030 on health care bills, according to BLS data. For those considering the role healthcare plays with their monthly budgets in retirement, Amy Hubble, principal investment advisor at Radix Financial, says these expenses in particular can be some of the most unexpected.

“Although Medicare is largely comprehensive, there are always gaps, especially if long-term nursing care is needed,” Hubble said, adding that “Healthcare Savings Accounts (HSAs) can be a great way to save and invest money for health care.” retirement by taking advantage of triple tax incentives, because health care costs can easily become your biggest retirement expense.(Looking for a financial planner? This tool can help you find a planner that meets your needs.)

Cut your entertainment costs

With individuals age 65 and older spending an average of $2,889 on entertainment in 2021, Palion says an easy way to reduce these rising monthly costs is to start cutting back on “discretionary expenses like that trip to the movies or at the restaurant. This should be the first thing that gets deleted.

And for those who still have it, another expensive place to make a monthly cut is your cable television shopping, Palion suggests. On average, monthly cable packages cost about $217.42, according to a report from Allconnect. That’s well above the $205.50 households spend on all major utilities combined. “You can just get an internet provider and then connect there, getting your TV viewing needs through one of the app-based options, which would cost less,” she says.

An earlier version of this story misreported transportation costs. It has been edited to note that “the average individual in this age group spent $1,396 on fuel in 2021.” To clarify, expenses the data annotated in this story includes both individuals and consumer units, as described by BLS.

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