This is the No. 1 expense, by far, for retirement-age Americans — and pros say it shouldn’t be

Average monthly expenditures for those 65 and older — including rent, groceries and healthcare — stand at around $4,345, according to the latest government data. In 2016, retirement-age Americans were getting away with spending nearly a thousand dollars less at $3,564. But, with inflation only recently starting to cool from its near 40-year high this summer, financial pros say older Americans may soon have to prepare to tighten their spending habits even more when planning for the future. 

“In order to retire successfully, you need a plan and strategy that encompasses a multitude of factors,” says Anthony Colancecco, a financial adviser with Ballentine Capital Advisors in Greenville, South Carolina. “You will want to consider your health, income, expenses, inflation, and other financial goals, as well as whether you have sufficient assets and are confident in your understanding of what retirement entails.” (Looking for a financial planner? This tool can help you get matched with a planner who meets your needs.)

It’s going to be tough, and you will likely “have to do things differently,” says East Norwich, New York-based adviser Peter T. Palion. Here are a few ways to slash expenses in retirement:

Pay off your mortgage before you retire

Roughly half of retirees now have a mortgage, Harvard’s Joint Center for Housing Studies revealed; in 1990, it was only about 1 in 4. And for older households, housing tends to be the greatest expense in average dollar amount and as a share of the household budget for older households, the Bureau of Labor Statistics revealed.

That’s a problem for those trying to retire on a tight budget for one big reason: housing is expensive. Of course, paying off your mortgage doesn’t release all housing costs (you’ll still need insurance, taxes and more), but it can alleviate the biggest chunk. 

“Owning your own home will certainly cut down on living expenses,” says NerdWallet investing spokesperson Alana Benson, although she also adds: “aggressively paying down your mortgage may make it difficult to save or invest pre-retirement.”

Consider moving to a lower taxed, and less costly state (or country)

Benson says one of the best ways to combat rising consumer prices is to move to a more cost-friendly location —  “to a state with lower taxes … and a lower cost of living.” That’s because, the amount of money “you’ll need for retirement will entirely depend on your lifestyle and living expenses,” she adds.

States like Alabama and Louisiana have average state tax rates of 0.41% and 0.55%, respectively, and their median home values are also relatively low at $209,000 and $217,296, according to a Bankrate survey. On the other end of the spectrum, states like New Jersey, which has an average tax rate of 2.49% and home price of $484,393, carry monthly levies that can quickly eat away at a single retiree’s cash flow. 

Master Plan Advisory’s Palion says it’s especially challenging for single individuals in high-tax regions of the country. “A single individual might be more apt to squeeze into a studio apartment, versus a couple who would occupy a one-bedroom, for instance,” says Palion. However, he adds that “a couple, as opposed to an individual, does not use twice the amount of utilities.”

Before making the decision to move, “which is an option and not off the table,” says Colancecco, retirees or those planning to retire soon should first put together a budget of their total monthly expenses. “For example, if I have a gym membership and a Peloton, do I need both? If I like to go out to dinner twice a week, should I reduce it to once? During times where inflation is at all-time highs, we have to make short-term decisions to help with long-term results,” he explains.

Slash transportation costs

Next to housing, transportation is often the second costliest thing the 65 and older age group spends money on, BLS data reveals. If you are no longer commuting into the office and have a partner at home, can you all go down to one car? Can you pay off your car, so it’s just gas, insurance and maintenance you are paying for? Could you get rid of a car altogether? 

Consider this: the average individual in this age group spent $1,396 on fuel in 2021, according to BLS data. That’s before gasoline prices reported a year-over-year increase of 17.5%, as of October 2022. What’s more, the  cost of new vehicles also climbed 8.4% in the past year, with used car prices rising 2%. 

Get smart about food costs

The price of food at home has increased 12.4% over the past 12 months, government data show. Palion says individuals should look at this as an opportunity to make smart spending cuts. “Switching from a name brand food to a store brand,” is one of the best ways to cut back, he says, adding that, “buying more in bulk at stores like Costco or BJ’s [Wholesale Club], and just essentially looking for cheaper alternatives,” is another. To be sure, research from MagnifyMoney found that bulk shopping can save an average of 25% on common household items. 

Evaluate your monthly utilities usage and spending

Although overall inflation has started to cool from its 40-year peak of 9.2% in June, consumer prices in October across the country remained relatively high at 7.7% above where they were 12 months prior, according to BLS data. Energy services, including electricity and gas, were up 15.6% year-over-year, data show.  With likely little room to reduce monthly expenditures for these individuals, he adds that they can reduce their utilities bills by turning down their “heat in the winter, maybe incrementally from 69 to 66 [degrees].”

Utilize your HSA

Last year, the average adult over 65 spent $7,030 on health expenses, according to BLS data. For those considering the role healthcare plays with their monthly budgets in retirement, Amy Hubble, principal investment adviser at Radix Financial, says these expenses in particular can be some of the most unforeseen.

“While Medicare is broadly comprehensive, there are always gaps, especially if long-term nursing care is needed,” Hubble said, adding that “health savings accounts (HSAs) can be a great tool to save and invest money for retirement while taking advantage of triple tax incentives, because healthcare expenses can easily become your biggest retirement expense.” (Looking for a financial planner? This tool can help you get matched with a planner who meets your needs.)

Cut entertainment costs

With individuals 65 and older spending an average $2,889 on entertainment in 2021, Palion says one simple way to reduce these swelling monthly costs is to start cutting back on “discretionary expenses like that trip to the movie theater or restaurant. That should be the first thing that gets eliminated.” 

And for those who still have it, another costly place to make a monthly reduction is your spending on cable television, Palion suggests. On average, monthly cable packages cost roughly $217.42, according to a report from Allconnect. That’s well above the $205.50 households spend on all major utilities combined. “You can just get an internet provider and then hook up there, satisfying your TV-watching needs through one of the app-based options, which would cost less,” he says.

An earlier version of this story misstated transportation costs. It has been amended to note that “the average individual in this age group spent $1,396 on fuel in 2021.” To clarify, expenditure data noted in this story encompasses both individuals and consumer units, as described by BLS.