You might be far from average. But it's worth looking at averages from time to time just to get a sense of how you compare to, well, the average retiree.
And to do that consider reading the Expenditures of the Aged Chartbook, 2015, which is published by Social Security Administration.
The chartbook examines the spending patterns of the population aged 55 or older, focusing mainly on the expenditures of those aged 65 or older. And the chartbook shows, among other things, how much the average retirees spends on housing, healthcare, transportation, food, and the like.
Here's the chartbook shows and what some takeaways are that you can apply in your life and in your retirement.
A Wide Range of Expenditures
First off, know that the averages can be deceiving. On average, households age 65 or older expend $44,375 per year. However, that number was strongly influenced by a relatively small proportion of household with very high expenditures, according to the SSA. Median expenditures, by contrast, were quite a bit lower -- $30,846.
It's also noteworthy, though perhaps not surprising, that annual expenditures for all households, or what the SSA calls "consumer units", aged 65 or older, ranged widely. In 2015, for instance, about 15% of older Americans spent less than $15,000, and almost 12% spent $75,000 or more.
And when you look at expenditures by income quartile, another picture emerges. For households aged 65 or older, median expenditures in the highest income quartile (more than $55,666) were $56,154, more than tripled those in the lowest income quartile ($17,630 or less) $16,395.
Working after age 65 helps:
The chartbook also shows a big difference in expenditures between households that have earned income and those that don't. For instance, median expenditures for household aged 65 or older with no earned income ($26,291) equaled 60% of median expenditures for those with earned income ($43,535). Also, of note, close to three-quarters (71%) of household aged 65 or older had no earned income.
Types of expenditures: According to the chartbook, housing was the largest component of expenditures (35%) for households aged 65 or older. Other large components included transportation (15%), out-of-pocket healthcare (13%), and food (12%).
Not surprisingly, the proportion of expenditures allocated for housing, food, and out-of-pocket healthcare was 26% higher for households in the lowest income quartile than for those in the highest income quartile.
Expenditures by age group: Researchers have long suggested that expenses decline as retirees move from the go-go years to the slow-go years to the no-go years. And that certainly seems to be the case according to the chartbook. Median expenditures for households aged 55-64 were $42,263; age 65-74, $34,008; and 75 or older, $26,845.
Components of expenditures by age group: The chartbook also revealed that housing accounted for the largest share across all age groups, ranging from 31% for those aged 55-64 to 37% for those aged 75 or older. And in terms of dollars spent, the median expenditure for housing for households aged 55-64 was $14,420 versus $11,920 for those aged 65-74 and $9,516 for those aged 75 or older.
Meanwhile, households aged 75 or older allocated 15% of expenditures to out-of-pocket healthcare, up from 8.7% for those aged 55-64. And in terms of dollars spent, the median expenditure for out-of-pocket healthcare for households aged 55-64 was $2,871, versus $3,803 for those aged 65-74 and $3,918 for those aged 75 or older.
Components of out-of-pocket healthcare expenditures: According to the chartbook, health insurance premiums accounted for the largest share of out-of-pocket healthcare expenditures, comprising two-thirds of the total for all three age groups. Medical services were the second largest component of healthcare expenditures for households, accounting for 17% to 19% of the total. Drugs were the third largest component, comprising 10% to 12% of out-of-pocket healthcare expenditures.
Trends in expenditures: The chartbook also shows that median expenditures have risen 14% from 2005 to 2015. Measured in 2015 dollars, median expenditures among households aged 65 or older increased from $27,028 in 2005 to $28,684 in 2010 and to $30,846 in 2015, according to the chartbook. The distribution of expenditures among households aged 65 or older, however, changed relatively little between 2005 and 2015.
What has changed from 2005 to 2015, however, is this: Between 2005 and 2015, expenditures for health insurance rose sharply, while expenditures for prescription and over-the-counter drugs fell among households aged 65 or older. Measured in 2015 dollars, mean household expenditures for health insurance premiums rose from $2,799 in 2005 to $3,358 in 2010 and $3,903 in 2015. And mean household expenditures for drugs fell from $1,186 in 2005 to $875 in 2010 and to $672 in 2015.
What do experts have to say about the chartbook?
Fear Healthcare Less Than Housing
"While healthcare expenses are perhaps the No. 1 fear among retirees (generally followed by outliving one's resources), for most retirees health expenditures aren't a significant component of total consumption/expenditures," says David Blanchett, the head of retirement research for Morningstar Investment Management.
What's more, two-thirds of out-of-pocket healthcare expenses -- health insurance premiums -- are very predictable, he says. "This isn't to say that medical expenses can't be significant, since they obviously are for some households, it's just that for most they aren't that big of a deal," says Blanchett. "Health insurance premiums have clearly been rising since 2005, but the other components have been relatively steady."
Andy Landis, author of Social Security: The Inside Story, was surprised that the healthcare expenses stayed virtually flat over the years 2005 to 2015. According to the chartbook, out-of-pocket spending for healthcare, including insurance premiums, comprised about 13% of expenditures in 2005, 2010, and 2015. "Yes, your healthcare costs will rise as you age, but they're no bigger a deal than they were 10 years ago, despite what you've heard," he says.
Landis also notes that advisers sometimes say to plan for increasing expenses as we age, because healthcare expenses will increase. "The data show that healthcare expenses do rise as we age, but not as fast as other expenses decline," he says. "If your plan is based on rising expenses, you might want to revisit it."
Get Housing Right
Whether you retire with a mortgage or not, having a plan for your housing expenses in retirement is critical, says David Freitag, a financial planning consultant with MassMutual.
"Clearly, retirees must have a focused plan for housing in retirement that works for their income level," he says. "The housing decision, because of its size, drives all of the other decisions. Therefore, location, house size, property tax, utilities, insurance roll-up into a definition of retirement lifestyle. If they get the housing decision wrong, all of their other decisions will be wrong as well."
Blanchett also says the actual "consumption basket" of each household is obviously going to vary. "So, it's important for retirees to put all this into the context of their situation," he says. "For example, if your house is paid off, your consumption basket is very different than the 'average' retiree, which has about 35% of total expenditures going to housing expenses."
All else being equal, Landis says paying down your mortgage is likely worth doing before you retire. "Housing is the biggest expense for all age and income groups," he says. "It looks like we should follow our parents' advice and 'prepay' for housing by paying off the mortgage before retirement."
Doing so could reduce the percent of your retirement income you spend on housing.
Taxes and Social Security
Another takeaway: "Spending declines with age, and as much as I hate to say it, that might support taking early Social Security," says Landis. "You'll have more money earlier, when expenses are higher."
Think about your retirement income. Of course, thinking about your expenses in retirement is just part of the lifestyle equation. The other part is making sure you have enough income to cover your retirement expenses.
And given the changes in the new tax law, the Tax Cuts and Jobs Act, William Reichenstein, a principal with Social Security Solutions and a professor at Baylor University, says there are two strategies that could boost your after-tax income in retirement. The caveat being this: Both strategies are based on the expectation that tax rates for 2018 and the next few years will be lower than future tax rates.
"The first strategy is to save after-tax funds in a Roth IRA instead of saving pretax funds in a traditional IRA or equivalently saving after-tax funds in a Roth 401(k) instead of saving pretax funds in a 401(k)," he says. "The second strategy is to use a Roth conversion in 2018 and as long as tax rates remain temporarily lower than they will be in the future. Again, the recent Tax Act says calls for higher tax rates beginning in 2026."
Got questions about the new tax law, Social Security, retirement and/or investments? Email Robert.Powell@TheStreet.com.