How Our Spending Changed in Retirement
The data, analysis and conclusions presented simply reflect our experience. They are meant to be informative but not representative or predictive of anyone else’s situation.
When we retired in 2010, one goal was to spend less while at least maintaining our standard of living.
The bottom line is that our spending is averaging 25.3% less per year in retirement. The drivers of this have been paying off our mortgage and lowering our taxes. Even when I remove the effect of a mortgage, our annual spending still averages 14.5% less in retirement.
As you know, spending patterns change after you stop working. The following table shows how our spending has changed. It is based on personal spending data from our pre-retirement years (2001 – 2010) and from our retirement years (2011 – 2015). Expense categories are listed in order of largest annual expenditures to lowest. For example, a change in mortgage expense has a more effect than a change to dining out on our actual spending.
|Expense Category||Change in Retirement Spending||By How Much|
|Home related [i]||Increased||+57.9%|
|Utilities[ii]||About the same||0%|
Our home related expenses increased because we had to make significant (i.e. costly) home improvements to our new house. These expenses are decreasing but those “savings” will be offset by the need to replace an aging car. (There’s always something.) Travel is our number one discretionary expense. It’s gone up because of the commitment we made when we moved to return to the Bay Area for all family events. Medical has increased because we no longer get health insurance through our employer. I anticipate that our taxes, medical, insurance and utility expenses will continue to creep up. My biggest concern is the risk of our medical expenses rising dramatically. We might be able to mitigate that risk somewhat by reducing our discretionary spending (e.g. travel) but it is still a concern.
The obvious conclusion is that we’ve been able to reduce our living expenses by getting out from under our mortgage and by significantly lowering our taxes.
The next table looks at some common expenses and compares whether the expense is less expensive in Arizona vs. California.
|Expense Category||Specific Expense||Which State Is Cheaper||Notes|
|Taxes||Property tax||AZ||About 50% less|
|Income tax||AZ||About 50% less|
|Sales tax||About the same|
|Groceries||About the same|
|Auto related||Drivers license fee||AZ||Very cheap in AZ|
|Registration||CA||About 25% less|
|Insurance||CA||Zip code dependent; AZ has issues with red light runners|
|Gas||AZ||At least 50 cents less per gal|
|Maintenance||About the same|
|Utilities||Gas & electric||AZ||We use more electricity for AC but cost per KWh is less|
|Water & sewer||AZ||Water is much cheaper|
|Care||About the same|
You can see that based on our data and analysis, we have met our goal to lower our cost of f living. I can also state that not only have we maintained our standard of living but that we’ve actually improved it which only makes our decision to relocate all the better..
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[i] Home related expenses include repairs, maintenance, insurance and improvements.
[ii] Avg utilities are difficult to compare because the mix is different. In general, electricity costs more in AZ and gas, water and sewer are cheaper in AZ.
[iii] Refers to the cost of insurance in the private market