How Expenses Change in Retirement: What to Expect When the Paychecks Stop

One of the biggest questions people have when preparing for retirement is: Will I spend more or less than I do now?

The answer isn’t the same for everyone—but one thing is clear: your spending will change.

Some costs drop when you leave the workforce, but others rise—sometimes more than people expect.

That’s why it’s critical to understand where your money is likely to go in retirement, so you can build a realistic income plan and avoid surprises.

Let’s break it down.

Expenses That Typically Go Down in Retirement

1. Commuting and Work-Related Costs: No more gas, tolls, dry cleaning, work clothes, or lunch out five days a week. These everyday expenses can add up to thousands per year.

2. Retirement Savings Contributions: You’ll no longer be putting money into 401(k)s or IRAs. That alone can free up 10–15% of your budget.

3. Payroll Taxes: Social Security and Medicare taxes (FICA) are only withheld from earned income. Most retirees no longer pay these.

4. State Taxes: Retirees in the state of Pennsylvania (and some other states) don't pay state income tax on social security benefits, pensions, or IRA, 401(k), and 403(b) distributions

5. Mortgage or Debt Payments: Many retirees aim to enter retirement debt-free (although this isn't essential, especially if you have a low interest mortgage). If your home is paid off, that’s a major monthly expense gone.

6. Child-Related Costs: If your kids are financially independent, you may be spending far less on food, tuition, and support.

Expenses That Often Increase

1. Health Insurance and Medical Costs: This is one of the biggest shifts—especially before age 65. If you retire before qualifying for Medicare, private insurance or ACA plans can be costly. Even after Medicare kicks in, you’ll still need to budget for:

• Part B and D premiums

• Medigap or Advantage plans

• Out-of-pocket costs, dental, vision, and hearing

• Long-term care (which isn’t covered by Medicare)

2. Travel and Leisure: Many new retirees want to travel, visit family, or pursue hobbies. That freedom is part of the reward for decades of work—but it comes with a price tag. It’s common to spend more on leisure in the first 5–10 years of retirement.

3. Gifting and Helping Family: Some retirees increase giving—either to charities or family members. Grandchildren’s birthdays, weddings, and education can become new priorities.

Retirement Spending Often Evolves Over Time:

Most people spend more early in retirement (the “go-go years”), level out mid-retirement (“slow-go years”), and then possibly increase medical spending in later years (“no-go years”).

As a result, it can be useful to project retirement expenses in stages:

• Early Retirement: Travel and lifestyle costs often rise

• Mid Retirement: Costs level off as travel slows

• Later Years: Health care and support services become the focus

Don’t Forget About Inflation

Even if your lifestyle stays the same, the cost of living won’t.

Inflation gradually erodes purchasing power, which means your retirement income will need to stretch further each year. While inflation has come down from recent highs, it still matters over a 20–30 year retirement.

For example:

• A retiree spending $60,000 per year today may need closer to $120,000 in 20 years to maintain the same standard of living with 3.5% annual inflation.

• Healthcare costs tend to rise faster than general inflation, making them a particular concern later in life.

That’s why it’s important to include investments that outpace inflation (like stocks) in your long-term portfolio, even after you retire. A mix of steady income and long-term growth can help preserve your purchasing power over time.

Expenses Worksheet

Here's an example expenses worksheet that can be used to organize how current expenses will change in retirement.

Bottom Line

Retirement brings more than a change in income—it brings a change in how, why, and where you spend.

The key is to align your expenses with your lifestyle goals before you retire.

The more accurately you estimate what retirement will cost, the more confidently you can step into it.

Want To Discuss This Individually?

1 - For clients: Call or email me any time as always.

2 - For non-clients: Complete the form on the website to request a retirement planning consultation: www.rolekretirement.com

This is article is for informational purposes only and should not be considered as tax or legal advice. Advice is only provided after entering into an Advisory Agreement with the Advisor. See other disclosure here: Disclosures