The Biggest Expenses in Retirement (No One Talks About a Huge One)

biggest expenses in retirement

When planning for retirement, it’s important to save enough money to cover the essentials. While a financial planner may discuss earmarking funds to pay for daily living expenses, housing and health care related costs, one of the biggest expenses in retirement is something that many advisers may overlook.

What Are the 3 Biggest Expenses in Retirement?

According to the Employee Benefit Research Institute (ERBI), the 3 biggest expenses in retirement are:

1. Housing
2. Transportation
3. Healthcare

Transportation? What?

Getting around is not that costly… Is it?

The Big Hidden Retirement Cost? Transportation! It Costs More than Healthcare!

Everyone knows to be worried about healthcare costs in retirement. Various studies have shown that rising health care costs in the coming years will require Americans to save more in order to afford these types of expenses in retirement.

Specifically, the ERBI study revealed that in 2015, a 65-year-old man would need $68,000 in savings, while a woman would need $89,000, if each wanted at least a 50% chance of having enough money saved to cover health care expenses in retirement.

Even so, health care expenses (not including long term care costs) command a slightly smaller share of expenditures for older Americans compared to transportation costs, according to data from the Bureau of Labor Statistics.

For adults age 65 and older, transportation costs represent 16% of expenditures, while health care represents 13.4%.

Transportation — the Second Highest Cost in Retirement

Both healthcare and transportation costs were higher than even food, which only represented about 12.5% of expenses for those age-65 and older.

However, housing costs were the highest for this age group, representing 33.9% of expenses, putting transportation costs at the second highest expenditure.

Despite its high share of expense, transportation costs don’t often get the attention they deserve in financial planning conversations.

“Transportation is one of the greatest under-discussed and under-planned things in retirement I’ve seen almost anywhere,” said Joseph Coughlin, director of the Massachusetts Institute of Technology AgeLab and the New England University Transportation Center, in an Investment News article. “We think about health, wealth and housing, but not mobility. Before we do anything, we have to get there first.”

Transportation Costs

Transportation costs go beyond simply buying a vehicle. They can also include insurance, gas, maintenance and repairs, car rental, leases and also public transportation. Even if a retiree no longer has a car payment, financial advisors still need to factor in these types of costs and how they will impact a person’s retirement plan.

On average, vehicle costs for adults age 65 and older are $2,282 annually, according to the Bureau of Labor Statistics—the largest transportation cost by category for adults in this age group. Annual costs for gasoline and motor oil were, on average, $1,757 per year, while vehicle insurance totaled $1,063, and maintenance/repairs amounted to $798.

Having a meaningful discussion about these expenses is important for retirees, considering 79% of seniors over age 65 live in car-dependent suburban and rural communities, according to a report by Transportation for America, an organization that lobbies for investment in local transportation.

However, You Might Not Be Able to Drive Forever, Nor Should You…

“When people make retirement plans, they make no transportation plans because they assume they’re going to drive forever,” said Katherine Freund, founder and president of the Independent Transportation Network, a nonprofit organization that offers ride services for older adults, after being featured in a New York Times article last year.

Luckily, there are several different transportation programs and services that retirees and older adults can take advantage of even if they are experiencing mobility issues later in life.

Best of all, these services might even reduce your transportation expenditures.

Does Your Retirement Plan Address Transportation?

For many people, transportation is an extension of independence in having the ability to do the things you want to do and see the places you want to see. But that independence comes with a price tag and it’s important to know how transportation costs may impact your financial plan.

If you’d like to know more about where transportation costs fit into your retirement plans, use a retirement calculator today.

The NewRetirement retirement calculator lets you set different tiers or retirement expenses so you can plan a more detailed retirement budget. This tool is more like a virtual financial advisor than a simple calculator.

Need a Lift?

Independent Transportation Network (ITN) is just one of the many solutions for retirees and older adults who have either transitioned from the driver’s seat to the passenger’s seat, or those who just need a ride every once in awhile to run errands, make appointments or visit nearby family.

The program operates as a membership-based service for people age 60 and older. According to ITN website, fares are touted to be more affordable and typically lower than a comparable taxi ride. The services are available to use 24/7 and no money is exchanged in the vehicle, so no need to worry about tips.

But if you just need the occasional ride from Point A to B, services like Uber and Lyft can help get you to where you need to be, and for a price tag that’s usually lower than cab fare. While the fare costs might differ depending on where you live, a recent report from Business Insider analyzed the mathematical breakdown of how Uber can actually save you money compared to traditional taxis.

Considering a sample trip that spans 5 miles and takes 10 minutes, Business Insider compared the average prices you can expect to pay for a taxi in a given city with the cost of an Uber ride.

In Chicago for example, taking this same trip would cost an average of $14 in a taxi, whereas in an Uber the fare would be $9.50. Thus, a taxi in Chicago costs about 1.5x an Uber car ride. Meanwhile in Los Angeles and Dallas, where taxi fares for this sample trip are $16.35 and $11.25, respectively, while Uber rides in these cities would cost about $9.40 and $10.30. Here, this makes taxis 1.7x more expensive in L.A. than an Uber, and 1.1x higher in Dallas.

While the cost savings are attractive, an added benefit to using ride-sharing services like Uber is that they allow you the freedom to go-as-you-please without having to subscribe to a membership-based program. And you don’t even have to live within a major metropolitan city to use these types of services either, as drivers are also available for suburban trips, too.

See how your expenses will impact your retirement plan



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