Home Expenses Likely to Upend Your Budget in Retirement

Anticipated Retirement Expenses That Could Impact Your Budget

As retirement approaches, concerns about healthcare costs often take center stage, given the age-related medical issues that tend to arise. However, recent data indicates that it’s not healthcare but rather your home-related expenses that might pose the greatest challenge to your retirement savings.

Analysis conducted by investment management firm T. Rowe Price reveals that the financial burden of maintaining your home is likely to be the most significant factor disrupting your retirement financial plans. Surprisingly, home-related expenses constitute a substantial 25% of the average American’s increased expenditure during retirement.

Retirement Spending Trends
T. Rowe Price’s research highlights the considerable impact of retirement on spending patterns. Of the approximately 1,300 American households surveyed, nearly half reported an annual spending increase of up to 25% after retiring, with one in five experiencing an even more substantial increase of over 50%.

While it might seem reasonable to attribute this spending surge to healthcare costs, the real culprit is home-related expenses, which include home repairs, mortgages, rent, and taxes. These expenses account for about a quarter of the average retiree’s heightened spending, while healthcare-related costs make up just 5% of the increase.

Importantly, the report reveals that spending volatility remains consistent across income levels. Both lower and higher-income retirees encounter similar fluctuations in their post-retirement spending. However, the nature of their expenditures differs. Wealthier retirees tend to experience less variability in their home-related expenses, with increased annual spending often attributed to discretionary expenses such as travel, leisure activities, and dining.

Unforeseen Costs in Retirement
Homeownership costs tend to escalate with each passing year, even if your home is mortgage-free. In 2023, the average annual cost of homeownership, excluding mortgage payments, has risen to $17,500, compared to $15,400 in the previous year. Many retirees continue to carry mortgage debt into retirement, with 44% of retirement-age homeowners being in this situation, representing a substantial financial burden. Property taxes also feature prominently among retirees’ expenses. Those who don’t own their homes are still burdened by rent payments, and both renters and homeowners often incur costs for insurance policies specific to their housing situations.

In addition to these major expenses, the T. Rowe Price report emphasizes that smaller purchases can add up significantly. Retirees often spend on services like housekeeping, laundry, household furnishings, and cleaning—expenses that tend to increase as retirees age and either prefer not to or are unable to perform these tasks themselves.

In summary, while healthcare costs do play a role in retirement budgeting, it is essential to recognize that your home-related expenses could have a more substantial impact on your financial plans during retirement.