According to the Bureau of Labor Statistics, American households spent an average of $78,535 in 2024.

The five largest spending categories were housing, transportation, food, healthcare, and personal insurance and pensions. Together, those categories represented nearly 84% of household spending.

Look at that list again.

Housing.

Transportation.

Food.

Healthcare.

Those are not luxury expenses.

You can cancel a vacation.

You can skip a new television.

You can eat out less.

But it is much harder to stop paying property taxes, insurance, groceries or medical bills.

That is why I think the phrase “I won't need as much money when I'm older” deserves a second look.

You may spend less.

But you may spend differently.

And that difference matters.

The Retirement Spending Curve Is Not a Straight Line

Research generally shows that average household spending tends to decline as people get older.

That is the good news.

EBRI research has found average spending around $50,300 for households ages 65 to 74, falling to

roughly $38,500 for ages 75 to 85 in the data it analyzed.

So yes, retirement can get cheaper overall.

But here is what caught my attention.

The mix of spending changes.

EBRI found that the share of people spending heavily on healthcare increased with age. Housing remained important. And some older households still spent more than their income.

That means the average can hide what is really happening inside individual households.

You might travel less at 78.

But you could be spending more on prescriptions.

You might stop commuting.

But you could begin paying someone to mow the lawn, shovel snow or clean the house.

You might eat out less.

But your insurance premium could climb.

One category shrinks.

Another one grows.

That is why retirement spending can feel stubborn even when your lifestyle becomes simpler.

Healthcare Is the Big One

This is the expense I would not underestimate.

Fidelity's 2026 retirement healthcare estimate says a 65-year-old individual may need about $185,500 in after-tax savings for healthcare expenses during retirement.

And that estimate does not include long-term care.

Think about that.

Nearly $186,000 for one person.

That is not one giant medical bill.

It is the accumulation of premiums, deductibles, copays, prescriptions and other medical expenses over many years.

And Fidelity notes that healthcare can consume an increasingly larger share of retirement resources as people age.

This is why Medicare should never be confused with “free healthcare.”

Medicare is extremely valuable.

But it does not erase every medical expense.

Then There Is Long-Term Care

This is the number that can completely change a retirement plan.

The U.S. Department of Health and Human Services has estimated that someone turning 65 has roughly a 70% chance of needing some type of long-term care services during their lifetime.

Recent national cost data cited by Fidelity put median annual costs at roughly:

$70,400 for assisted living

$80,080 for homemaker services

and about

$129,575 for a private nursing-home room.

Nobody knows whether they will need those services.

But imagine someone living on $4,000 a month suddenly needing thousands of dollars of additional help.

That is when the idea that “my spending will go down when I am 80” can fall apart very quickly.

The House Can Fool You Too

A lot of people say:

“My mortgage will be gone in retirement.”

That is great.

But the mortgage is only one part of the cost of owning a house.

There is still:

Property tax.

Homeowners insurance.

Heating.

Electricity.

Repairs.

A roof.

A furnace.

Plumbing.

Lawn care.

Snow removal.

And eventually, perhaps, paying someone else to do jobs you used to do yourself.

That last category is easy to overlook.

At 62, you may clean the gutters yourself.

At 82, you may be paying someone.

At 65, you may mow your own lawn.

At 80, maybe you hire it out.

Your house did not necessarily become more expensive.

Your ability to do everything yourself changed.

That changes the math.

Transportation Changes Too

A lot of retirement calculators assume transportation costs fall because you are no longer commuting.

Often they do.

But transportation does not disappear.

You still need:

A vehicle.

Insurance.

Gas.

Repairs.

Registration.

Or eventually rides.

At some point, a person who no longer drives may begin paying for taxis, rideshare services, public transportation, delivery services, or help from others.

So transportation spending can shift rather than vanish.

Inflation Keeps Working After You Stop Working

Here is another problem.

Your salary stops.

Inflation does not.

Even modest inflation can make a big difference over a long retirement.

Imagine you retire at 65 and live to 90.

That is 25 years.

At 3% annual inflation, something costing $100 at the beginning would cost more than $200 roughly 24 years later.

Your grocery bill notices inflation.

Your insurance company notices inflation.

Your repairman notices inflation.

Unfortunately, your retirement budget notices it too.

This is one reason I think retirement planning should not focus only on:

“How much will I spend the first year?”

The better question may be:

“Which expenses could become more expensive as I age?”

Here's the Retirement Budget I Would Build

Instead of one retirement budget, create three.

Call them:

Budget #1: The Active Years

Maybe ages 65 to 74.

More travel.

More restaurants.

More hobbies.

More driving.

Possibly more entertainment.

Healthcare may still be manageable.

Budget #2: The Slower Years

Maybe ages 75 to 84.

Travel may decline.

Entertainment may decline.

But medical expenses could increase.

You may begin paying for household help.

Transportation may change.

Budget #3: The Support Years

Perhaps age 85 and beyond.

This is where you ask uncomfortable—but useful—questions.

Would you need someone to help at home?

Could you afford assisted living?

Could your home need modifications?

Would you need meal delivery?

Transportation help?

More medical care?

You may never need many of these things.

But pretending they cannot happen is not a retirement strategy.

Try the $500 Test

Here is a simple exercise.

Take your current projected retirement income.

Now imagine that when you reach 80, you suddenly need another:

$500 a month.

That is:

$6,000 a year.

Could your retirement handle it?

Now try:

$1,000 a month.

That is:

$12,000 a year.

Where would it come from?

Social Security?

Savings?

Home equity?

Part-time income?

Family?

Insurance?

Your investments?

This exercise is not meant to scare you.

It is designed to expose weak spots before they become emergencies.

There Is Some Good News

You have more control than you might think.

One of the best things you can do after 55 is reduce fixed costs before retirement.

Fixed expenses are dangerous because they are hard to escape.

For example:

Large mortgage payment.

High car payment.

Credit-card debt.

Expensive insurance.

Subscriptions.

High-cost housing.

The lower your mandatory monthly expenses, the more room you have for the costs you cannot predict.

That is why saving $300 a month today could be more important than finding an extra $300 a month when you are 80.

Think in Terms of Flexibility

I believe one of the most underrated retirement assets is flexibility.

Not just money.

Flexibility.

Can you downsize?

Could you sell a second vehicle?

Could you move closer to family?

Could you reduce travel temporarily?

Could you tap home equity if necessary?

Could you earn a little extra income?

Could you postpone a major purchase?

A rigid retirement plan says:

“I need exactly $4,500 every month.”

A flexible plan says:

“I know which expenses I can change and which ones I cannot.”

That is a much stronger position.

The Big Retirement Myth

The myth is not that people spend less as they age.

Many do.

The myth is assuming that lower spending is guaranteed.

Because retirement does something interesting.

It often replaces optional expenses with necessary ones.

You may spend less on vacations.

But more on healthcare.

Less on commuting.

But more on home maintenance.

Less on restaurants.

But more on help around the house.

Less on entertainment.

But perhaps much more on care.

So when someone tells me:

“I'll only need 70% of my income once I retire.”

My next question would be:

Why?

Not because the number is wrong.

But because your retirement deserves more than a percentage pulled from a rule of thumb.

The O55 Bottom Line

Retirement is not one 30-year vacation.

It has stages.

Your expenses at 67 may look completely different from your expenses at 87.

That is why the smartest retirement budget may not be the one that predicts exactly what you will spend.

It may be the one that leaves room for what you cannot predict.

So this week, take another look at your retirement budget.

But do something different.

Do not ask:

“What can I cut?”

Ask:

“What could get more expensive as I get older?”

Healthcare.

Housing.

Insurance.

Transportation.

Home help.

Long-term care.

Then build a little room around those expenses.

Because the goal isn't simply to make your money last until retirement.

The goal is to make your money last through retirement.