What’s the Cost of a 25-Year Retirement? Over $800,000 on Average

A recent article from CNBC.com highlights the staggering amount you may need to sustain a 25-year retirement — up to $1 million or more in several states across the U.S. While the exact figure varies depending on your location, the national average for a 25-year retirement exceeds $800,000. To accurately plan for retirement, it’s crucial to understand the typical annual expenses of current retirees.

Housing Costs

Housing remains the largest single expense for retirees. Typical housing costs encompass mortgage payments or rent, homeowners’ insurance, property taxes, and HOA fees. According to the latest data from the Bureau of Labor Statistics, retirees aged 65 and older allocate approximately 36.2% of their annual income to housing.

Transportation Costs

Whether you’re using ride-sharing services like Uber for appointments and errands or driving your own car, transportation is a significant retirement expense. For retirees aged 65 and above, about 13.7% of their retirement income is spent on transportation, excluding costs associated with air travel for vacations or other travel adventures.

Healthcare Costs

Healthcare costs currently account for 13.5% of retirees’ overall expenses. However, as medical care and prescription drug costs continue to climb rapidly, healthcare inflation is outpacing general consumer inflation. With over 11,000 Baby Boomers turning 65 every day, healthcare expenses are anticipated to rise even further in the coming decade.

Grocery Costs

The Bureau of Labor Statistics reports that the Consumer Price Index for food at home rose by 3.7% in the year ending September 2023, which is more than three times the overall inflation rate. For retirees aged 65 and older, grocery costs now constitute roughly 12.4% of their annual expenses.

Utility Costs

Over a 25-year retirement, utility costs will increasingly consume a larger portion of your income. Even if inflation rates stabilize, the cost of essential utilities like oil can surge due to global events. As retirees spend more time at home, the expenses related to electricity and air conditioning also increase. Currently, utility costs account for about 7.5% of retirees’ living expenses.

For help in calculating and planning your retirement expenses, consider consulting with an FRC® trained advisor.