Major Retirement Expenses to Prepare For

Retirees generally spend less money than people who are working. The average retired household has about 22% lower costs than the average working household and spends about $14,000 less per year, according to U.S. Bureau of Labor Statistics data. Many people are able to live comfortably in retirement with a smaller income than they had while working.

Remember to prepare for these key areas of retirement spending:

-- Housing.

-- Transportation.

-- Health care.

-- Food.

-- Entertainment.

-- Savings and pensions.

-- Apparel.

-- Education.

Retirement spending typically declines for housing, food and clothing costs. However, average spending in retirement often increases for health care expenses. Consider these major retirement costs:

Housing

Housing is generally the biggest annual expense for working and retired people, and housing costs tend to decline in retirement. Some 80% of retires own their home, and the majority have paid off their mortgage, BLS found. Still, nearly a quarter (23%) of retirees continue to face mortgage payments and 20% pay rent. The average working family spends almost $21,000 a year on housing, while average spending on housing after retirement drops by roughly 20% to just under $17,000, largely because many retirees have paid off their home or downsized.

[See: The 10 Best Places to Retire With Affordable Housing.]

Transportation

Transportation costs decline on average from about $10,000 per year for working people to around $7,500 annually among retirees. Retired people no longer have to commute to work and tend to travel fewer miles. Older households sometimes sell a second car, which saves on car loans, insurance and maintenance costs. And retirees often qualify for senior discounts on public transportation. For example, people age 65 and over benefit from discounted rates on public transportation in Boston, Washington and San Francisco. In the Philadelphia metro area, seniors are eligible to ride public transportation for free.

Health care

As you might expect, spending on health care typically goes up in retirement, from an average of about $4,000 among working people to around $6,500 per year for retirees. Most retirees qualify for Medicare, but basic Medicare costs $135.50 monthly, per person. Many people purchase a prescription drug plan and a supplemental plan for an additional cost. Also, Medicare doesn't cover some health care expenses such as dental work, glasses, hearing aids and long-term care.

[See: 10 Things You Need to Know About Medicare.]

Food

Average food costs for retirees are 23% less than those for working people, often because there are fewer people in the household to feed. Retirees have more time to shop for bargains, cook meals at home using healthy ingredients and pay attention to their diets. The average annual food cost is $6,326 among people age 65 and older.

Entertainment

Entertainment costs vary widely, depending on the desired activities. On average, entertainment spending goes down from a little over $3,000 a year before retirement to about $2,600 a year among retirees. Retirees can often find free or discounted entertainment opportunities at senior centers and libraries. Remember to take advantage of senior discounts, such as the America the Beautiful Senior Pass to national parks.

Savings and pensions

Once you retire, you no longer have to pay into your pension fund, and you don't pay the Social Security payroll tax unless you have earned income. Retirees often stop contributing to an IRA or other investment accounts. The average outlay for pensions and Social Security drops from about $7,500 a year for people under age 65 to around $3,000 a year for those age 65 and older. However, retirees who continue to work sometimes invest a portion of their earnings for the future.

Apparel

Retirees don't have to spend money on business suits or other clothes for work. And retirees typically care less about the latest and most expensive fashion trends. So clothing costs are typically cut by about $1,000, from $2,000 annually before retirement to $1,000 after.

[See: 10 Ways to Reduce the Cost of Retirement.]

Education

Most retirees are no longer buying books and school supplies for their children or saving for college tuition. Education expenses drop significantly from an average of $1,847 per year for working households to $388 among people age 65 and older, BLS found. But some seniors continue to pursue learning opportunities. Those age 65 and older spend more on reading materials than any other age group. Many retirees take advantage of local continuing education courses, sign up for classes at a community college or find interesting offerings at a local museum, cultural center or community organization. Classes for retirees are often more affordable than those available to younger people.

Tom Sightings is the author of "You Only Retire Once" and blogs at Sightings at 60.