Retirement: What will it really cost?

How retirement costs may break down

When you’re planning for retirement, you first need to figure out what your expenses are likely to look like. What each person will need varies widely, but there are certain expenses you can count on. Here’s a breakdown of some of the likely costs.Footnote 1

Click to see how costs change as you age

Entertainment 9% Clothing 3% Transport-
ation 16% Health 8% Other 5% Home 47% Food 12%
Entertainment 9% Clothing 3% Transport-
ation 14% Health 11% Other 7% Home 43% Food 13%
Entertainment 9% Clothing 3% Transport-
ation 11% Health 13% Other 8% Home 42% Food 13%
Entertainment 6% Clothing 3% Transport-
ation 7% Health 19% Other 8% Home 44% Food 11%

Housing costs are highest earlier in retirement. The median amount older homeowners owed on mortgages increased 82% from 2001 to 2011, from approximately $43,400 to $79,000.Footnote 2

82%

Transportation costs tend to decrease over the course of retirement. Between ages 65 and 75, the percentage of retirees who drive falls from 88% to 69%.Footnote 3

Annual household expenses decrease from $49,477 for retirees ages 65-74 to $38,123 for those over age 75.Footnote 4

$49,477$38,123

Housing, food, transportation and entertainment costs all tend to decrease from early retirement years, while health care expenses rise considerably.

Starting point: Essential expenses

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Health
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If you’re relatively young, you may not think much about your health care expenses. But expenses can mount as you age. To anticipate your health care costs, look at your parents’ medical history and your own health.

Estimated out-of-pocket health care costs if retirement lasts ...Footnote 5

As life expectancies increase due to advancements in medicine, your retirement could last 30-plus years.

$50,900
10 years
$91,200
15 years
$146,400
20 years
$220,600
25 years
$318,800
30 years

Length of retirement

$80,300 per year

Starting point: Essential expenses

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Home
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While housing costs may decrease in retirement if you have paid off your mortgage or if you plan to downsize or move to a less expensive area, housing remains the largest expense on average for retirees. When estimating costs, don’t forget to account for home repairs or renovations.

Next: Lifestyle expenses

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Leisure
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If you plan to do a lot of traveling or take up an expensive hobby, you may need to allocate more funds to this category. These are also the easiest expenses to cut back on if your financial situation changes.

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81% of retirees want a retirement with peak experiences that stand out from everyday events.Footnote 10
$3,700 Average amount spent by a retired Baby Boomer on leisure travel in the past 12 months.Footnote 11
45% of retirees say the fear of outliving their money could limit their spending on things they want to do.Footnote 12
Across their lifetimes, retirees achieve the greatest balance of health, free time, fun and emotional well-being between ages 61-75.Footnote 13

Estimate annual retirement expenses

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Finances
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Retirement expenses for someone age 65+ can vary by region. Use this calculator as a starting point to consider your future expenses — and the income stream you’ll need to support them.

Step 1

Select your region

Step 2

Click the categories to add up expenses

Sample monthly expensesFootnote 14

$1,390 $1,190 $1,120 $1,490
$100 $80 $90 $100
$510 $440 $440 $450
$210 $190 $210 $200
$490 $520 $450 $490
$240 $170 $210 $220
$580 $610 $570 $550
$430 $430 $370 $380
Annual Total:
$0

per year for those age 65+ in the West Midwest South Northeast

Select another region

Your retirement may last for decades — so it pays to be prepared. Life changes can alter your plan, so review your savings plan annually to make sure you stay on track.

The Merrill Edge® Personal Retirement Calculator can help you estimate how much you'll need to retire and see if you're on track.

Concerned about saving enough for retirement? Check out these helpful ideas and tools from Merrill Edge.

After estimating your expenses, consider ways to maximize your income and savings to help cover them.

Footnote 1 Based on estimates from Consumption Activities and Mail Survey (CAMS) in Employee Benefit Research Institute (EBRI) Notes, September 2014

Footnote 2 Consumer Financial Protection Bureau, “Snapshot of older consumers and mortgage debt,” May 2014

Footnote 3 AARP Public Policy Institute, “How the Travel Patterns of Older Adults Are Changing: Highlights from the 2009 National Household Travel Survey,” April 2011

Footnote 4 Consumer Expenditure Survey, “Table 1300. Age of reference person: Annual expenditure means, shares, standard errors, and coefficients of variation,” 2015

Footnote 5 Health Care Cost Institute Report, “Health Care Costs: From Birth to Death,” 2013. Estimates assume retirement starts at age 65 and include uninsured out-of-pocket health care costs and Medicare and any other insurance premiums. Estimates are for the average retiree and exclude long-term care costs.

Footnote 6 National Clearinghouse for Long-Term Care Information, U.S. Department of Health and Human Services

Footnote 7 Genworth 2015 Cost of Care Survey

Footnotes 8,9 Merrill Lynch/Age Wave, Home in Retirement: More Freedom, New Choices, 2014

Footnotes 10,11,12,13 Merrill Lynch/Age Wave, Leisure in Retirement: Beyond the Bucket List, 2016

Footnote 14 Expenses rounded based on data from the Consumer Expenditure Survey, U.S. Bureau of Labor Statistics, 2014-2015

 

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