You’ve worked hard all your life and now you’re retired. But have you thought about what your monthly spending will look like? Many people worry about this when planning for retirement.
This article will break down the average spending for Canadian retirees, what they tend to spend their money on, and how these spending habits change throughout different stages of retirement. Stay with me to the end, where I’ll share real insights from our clients on their actual spending in retirement.
In Canada, the average household spending for retirees aged 65 and above is $61,800 per year. The biggest expense is housing, even though many retirees own their homes. Maintenance, property taxes, and utilities still add up. Food and transportation are also key expenses.
Health care costs climb as well, despite free health care in Canada, due to rising medical needs. Personal insurance and pensions also take a decent chunk of the budget, highlighting the need for ongoing financial planning.
Key Takeaways
- Average yearly spending for Canadian retirees is $61,800.
- Housing, food, and transportation are the major expenses.
- Spending habits change through three phases of retirement.
Average Spending for Retirees in Canada
Shelter Costs
Retirees in Canada spend a significant amount on shelter. Annually, this amounts to approximately $3,814, or around $1,151 each month. Though many retirees own their homes, expenses like maintenance, property taxes, and utilities still add up and these costs make up about 22.3% of their monthly budget.
Food Expenses
Food is another important part of a retiree’s budget, costing about $7,767 yearly. This breaks down to roughly $639 per month and represents around 12.4% of their monthly spending. This includes both groceries and dining out.
Transportation Budgeting
While retired people tend to spend less on transportation compared to working folks, it still accounts for a good chunk of their budget. Monthly transportation expenses make up about 8.8% of their total spending.
Allocating for Health Care
Health care costs become more prominent during retirement, taking up around 5.6% of monthly expenses. This is largely due to increased medical needs and prescriptions as one ages.
Insurance and Pension Contributions
Even in retirement, you’ll need to think about insurance and pension contributions. These costs eat up about 5.4% of the monthly budget, highlighting the need for ongoing financial security.
Household Operations Spending
Costs related to maintaining and operating a household are also essential. These expenses make up around 5.3% of monthly spending, covering items like cleaning supplies, minor repairs, and other household needs.
Differences in Household Spending by Age
Peak Spending During Middle Age
Between the ages of 40 to 54, your household spending is often at its highest. During this period, you may have larger home costs, increased family expenses like higher food consumption and perhaps education costs for children. You also start seeing higher health care expenses just as you are gearing up to save more for retirement.
Lower Spending Before Retirement
As you approach retirement, between the ages of 55 to 64, spending tends to decrease. At this stage, your childcare expenses are often reduced. Health care costs may continue to grow, but you are likely focusing more on paying off your mortgage and preparing for retirement.
Less Spending During Retirement
When you finally retire, around age 65 and beyond, your expenses usually drop further. The focus shifts toward covering essential costs like housing maintenance, food, and health care. Transportation costs typically decrease since there are fewer work-related travel needs, and spending on luxuries often goes down.
The Three Phases of Retirement Spending
Peak Spending Years
As you step into the early years of retirement, between the ages of 65 and 70, you might find your spending higher. You’ll still be covering housing expenses like property taxes and maintenance, even if your mortgage is paid off. Transportation costs also decrease because you no longer have daily work commutes, but you might still spend on maintaining your vehicle and travel.
Health care costs start to increase as medical needs rise. Food expenses may slightly drop as you dine out less. During these years, you might also spend more on hobbies and travel as you enjoy your newfound free time.
Moderate Spending Years
In the middle phase of retirement, around ages 70 to 75, your annual spending might decrease. Housing costs stabilize, and you might even downsize to a smaller home. Transportation costs drop further as you travel less. Health care expenses continue to rise due to more frequent medical care. Your food costs remain steady or decrease slightly. Your travel expenses also reduce, and you might focus more on activities closer to home.
Reduced Spending Years
In your later retirement years, past age 75, your spending usually drops further. Housing costs remain the same with ongoing maintenance and utilities. Transportation costs are much lower because you rarely travel. Health care costs become the most significant expense due to potential long-term care services. Food expenses stay low as dietary needs simplify, and travel spending nearly ceases. You might spend more time on community and home-based activities during these years.
Alex’s Financial Journey Through Retirement
In the early phase of retirement (ages 65 to 70), you might spend around $70,000 a year. Housing costs can still be a major part of your budget, even though your mortgage is paid off. Transportation costs go down since daily commuting stops, but maintaining a car and occasional travel still add up.
Healthcare expenses begin to rise, reflecting increased medical needs and insurance premiums. You may also enjoy spending more on hobbies and travel, taking advantage of your free time. Food expenses can decrease slightly as you eat out less and prepare more meals at home.
Between ages 70 to 75, spending typically decreases to about $60,000 annually. Housing costs might stabilize or even slightly decrease if you decide to downsize. Transportation costs reduce further with less travel. Healthcare expenses continue to increase due to more frequent medical care. Your food expenses stay stable or go down further, reflecting changing dietary needs. Travel spending may decline, and you could focus more on home-based activities.
After age 75, your annual spending might drop to about $50,000. Housing costs remain stable with ongoing maintenance. Transportation costs are significantly lower as you rarely travel. Healthcare becomes a major expense, including costs for long-term care services. Food expenses stay low due to simpler dietary needs. Travel spending often halts, with a focus more on community and home-based activities.
Retirement Spending Trends Observed at Blueprint
At Blueprint, we’ve noticed various spending patterns among retirees. Generally, you’ll find that retirees spend between $4,000 to $7,000 or even $8,000 per month. Higher-end households might spend anywhere from $5,000 to $9,000 per month. That said, the range can be quite wide. Some retirees manage comfortably on as little as $2,000 monthly, while others might spend over $10,000 each month.
One common trend that stands out is that spending tends to be higher in the early years of retirement and then gradually decreases. This pattern is quite consistent with what we discussed earlier about the three spending phases in retirement.
For example, if you find yourself spending $100,000 annually in your early retirement years, you might see this drop to around $75,000 per year as you settle into your new lifestyle. The reduction can be due to various factors like lower housing expenses and decreased transportation costs.
