4 Expenses That Add Up To $2,000 a Month After You Retire

There's a common assumption that people will spend less during their retirement years, because their children are grown and hopefully, they've paid off their mortgage. Admittedly, there are lower commuting costs, no work clothes, and potentially lower taxes, but these are offset by other expenses that can still be expensive.

According to BLS data, Americans 65 and older spend an average of roughly $5,000 per month. There are four specific categories that catch retirees off guard, even if they dutifully saved in a 401(k) retirement plan throughout their working careers. These include healthcare costs, home expenses, travel and leisure spending, and utilities.

Healthcare costs are often more than people expect

Even though many people have some type of healthcare coverage in retirement, there are still out-of-pocket costs that can catch many retirees by surprise. For example, they may have to pay for insurance premiums, supplemental plans, prescriptions, and out-of-pocket costs. According to Federal Reserve data, these expenses total $7,799 per year, or approximately $650 per month.

If someone has more complex medical issues or requires long-term care or in-home care, this number can be even higher. Additionally, healthcare costs may rise as people get older, so what people pay for healthcare when they first retire may not be representative of what they'll pay in the future as they age.

Homeownership can be expensive, even with a paid-off mortgage

Many retirees focus on paying off their mortgages or lowering their mortgage costs prior to retirement. However, even for people who own their home outright, there are still considerable expenses that come with maintaining a home. These include mortgage interest, property taxes, maintenance, repairs, and insurance.

Data from the Federal Reserve says that people 65 and older pay, on average, $8,196 per year on these costs, or approximately $680 per month. Because homes continuously need maintenance and may have unexpected repairs pop up, it's wise for retirees to have a substantial emergency fund for Emergency expenses. Additionally, as people age, they may need to outsource and hire more help when it comes to mowing the lawn, housekeeping, or other household expenses.

More free time often means more spending

Most people look forward to retirement because they will finally have time for leisure. People tend to take more trips, invest in new hobbies, and in general, enjoy the free time that they have more. However, this comes with a cost, especially if people take frequent vacations.

On average, the data shows that retirees spend $3,025 annually on travel and leisure costs. This equates to approximately $250 a month. For retirees who are on a more limited income, there are still numerous free or discounted activities that they may be able to enjoy, such as nearby festivals or shopping days with senior discounts.

Staying at home more means higher utility bills

Finally, the final cost that catches some retirees off guard are utility costs. Many people are used to being at work, but retirement often means more time spent at home. That can mean using electricity more, needing to cool their home during the day, and in general, using more energy. On average, people spend $4,480 on utilities annually or around $370 a month.

These four costs combined, utilities, leisure and travel, healthcare, and homeownership add up to just under $2,000 a month.

How to prepare for these retirement expenses (and more)

Healthcare, housing, leisure spending, and utilities alone can add up to nearly $2,000 per month for many retirees. And those aren't the only expenses people face after leaving the workforce.

Food is another major budget item, costing retirees an average of $7,940 per year. Beyond that, other expenses that might surprise you include convenience spending, subscription creep, and financial support for family members. 

Because so many expenses continue long after paychecks stop, it's important to build a realistic spending plan before retirement begins. Understanding where your money is likely to go can help you avoid surprises and make your savings last longer.

A smart withdrawal strategy can stretch savings

If you're a retiree, one way to ameliorate higher costs is to work with a financial advisor to develop a clear withdrawal plan. Many advisors recommend that retirees withdraw from their retirement accounts in a specific order that is most tax beneficial for them.

Build a realistic retirement budget before you stop working

Ideally, planning for some of the expenses above can help people to transition into retirement. Workers can practice living on the budget they'll have in retirement for a few years before they stop working. That can help with some of the growing pains that come from switching from a salaried income to a fixed income.

Bottom line

The key to having a stress-free retirement is to create a budget, understand retirement expenses, and consult with a financial advisor who can let people know whether or not they're on track. Ultimately, retirement can be less expensive for many people in some ways, but other costs may rise too. It's good for people to be prepared for that so they can alleviate stress and feel financial confident in their golden years.