What do retirees spend on?

The game I play is elementary. If someone can succeed in early retirement, this person will also likely succeed in retiring at the statutory retirement age of 65.

But this begs the questions: What is retiring like in Singapore? What should we expect to spend when we retire?

Every five years, the Department of Statistics will compile a report on Household Expenditure Surveys, with the latest survey conducted in 2018. This report can tell us in great detail how much retirees are spending.

I compared the average household expenditures per head with households comprising only non-working members above age 65. 

Doing this allows gaining some insights on how we should expect our expenses to adjust as we get older. 

The table I have built is as follows:

Good news,

Your expenses are likely to go down as you get older

As children leave the nest and there is no longer a need to go to work, you will find that an entire category of expenses can disappear for retirees.

In Singapore, children’s tuition expenses is a significant expense that is generally no longer borne by retirees. 

If we ignore the need to pay off a home mortgage, a retiree at age 65 should expect to spend much less than the average citizen. Amounts spent, not counting mortgage payments, can be reduced from $1,627 to $1,154 every month, which is approximately a 30% drop in monthly expenses.

This information tells us that if you can reach financial independence earlier in life and pay off your monthly expenses using investment income, you will likely sustain your financial independence after 65.

More so if you can receive a significant boost from CPF Life payouts.

However, retirees seem to spend more in 3 catergories:

1 – Food, Beverages and Tobacco

As my mother lives on her own and spends more time cooking at home after buying groceries from the nearby Sheng Siong. She is less interested in going to the nearest restaurant as the food has too much MSG anyway. 

One anomaly from the statistics is that retirees, on average, spend more on food and beverages. I suspect this is because average households may include toddlers and children who consume much less food than adults, which lowers the average expenditures in this category. Another reason is that restaurant visits fall under the “Food Serving Services” category.

This increase is not too high, but you should expect to spend more on groceries and home cooking after retirement.

2 – home furnishing and routine household maintenance

One of the legacies left by my dad is an HDB filled with rosewood furniture, which is very sturdy but in my opinion, incredibly ugly and uncomfortable.

As a result, my mother has not spent much on buying new furniture. Instead, routine aircon clean-ups and occasional small-scale home repairs take up parts of the household budget.

Even though retirees spend less on rent and utilities like water and electricity, they spend more on home furnishing and household maintenance.

Since older folks spend more time at home, they have a much greater incentive to purchase a carpet or a recliner. Older homes may also require more renovation works to keep them in working order.

One way of exploiting this insight is to start looking for higher quality furnishings on your last leg of your career so that you can get more mileage out of your purchases when your job is over, and you spend more time at home. 

3 – Health care costs will be a significant concern for retirees

Routine healthcare cost for my mother has been escalating for the past ten years. The medication to maintain her high blood pressure is no longer as effective as before, so I brought her to a cardiologist at Novena Mount Elizabeth to upgrade her medication.

The routine blood check with a specialist flagged that her diabetes, cholesterol and thyroid levels are also out of control. We count ourselves fortunate to afford private healthcare where we can take proactive steps to deal with health problems. 

Finally, nothing is scarier than escalating healthcare costs. Living up to 65 means having healthcare costs escalate by almost 50%. You will find that reducing overall expenses will often be offset by escalating medical costs.   

The best time to work on your retirement is now.

The best approach to deal with changing expenses upon retirement is to take an aggressive approach towards retirement planning at the earliest age and then using your investment portfolio to offset the effects of inflation over time. 

To offset non-mortgage related expenses of a retiree, you will need to prepare a portfolio that pays $1,154.20 x 12 or $13,826. You can safely withdraw $13,826 from a portfolio of ($13,826 / 4%) or $345,660. 

A $350,000 portfolio of REITs structured to provide 6% yields can produce $21,000 a year or $1,750 a month, which forms the basis for an excellent goal to achieve for Gen Z or Millenials trying to grapple with future uncertainty today. 

Before retirement, a regular payout approximating $1,750, while it may not cover all your existing monthly expenses, can make a huge difference in your lives.