Retirement Living Expenses: What Actually Changes (And What Doesn't)

The most common mistake in retirement planning is assuming you'll spend 70–80% of your pre-retirement income. Some people do. Many spend the same or more, especially in the first decade when travel, hobbies, and grandparenting are at their peak. Understanding which expenses rise, which fall, and which stay flat is essential to building a retirement budget that won't crack under pressure.

Expenses that typically fall

• Payroll taxes (7.65% for employees) disappear entirely.
• Commuting costs: gas, parking, transit passes, vehicle wear.
• Work wardrobe and dry cleaning.
• Retirement savings contributions (though some continue saving in taxable accounts).
• Mortgage payments if the home is paid off.

Expenses that typically rise

• Healthcare: premiums, out-of-pocket costs, and long-term care.
• Travel: the 'go-go years' of early retirement often feature extensive travel.
• Hobbies and entertainment: golf, dining out, theater, clubs.
• Home maintenance: older homes need more repairs; you may also pay for services you once did yourself.
• Gifts and support for adult children or grandchildren.

The three phases of retirement spending

Research shows retirement spending follows a smile pattern: higher in the 'go-go years' (ages 60–75) when retirees are healthy and active, lower in the 'slow-go years' (75–85) as activity declines, and higher again in the 'no-go years' (85+) due to healthcare and long-term care. Budget for the peaks, not the average.

Geographic arbitrage

Moving to a lower-cost area in retirement is one of the most powerful expense reduction strategies. A couple spending $80,000/year in San Francisco might live on $50,000 in Austin, $45,000 in Raleigh, or $35,000 abroad in Portugal or Mexico. Property taxes, housing, groceries, and services all drop. The tradeoffs are climate, healthcare access, and proximity to family. Run the numbers for a few locations before assuming your current cost of living is fixed.

The honest budget exercise

Before finalizing your retirement number, track every dollar you spend for three months. Categorize each expense as essential, important, or discretionary. Your retirement budget should cover essentials and most 'important' items from guaranteed income. Portfolio withdrawals should fund discretionary spending. This two-tier approach means you can cut 20–30% in a bad market year without suffering.