What comes to mind when you think of retirement? World travel? The list of books you never got around to reading? Grandparents’ day at school? No matter what you think of when you hear the word, one thing is for sure: retirement isn’t cheap.
Unfortunately, but unsurprisingly, healthcare is a more pressing expense than exotic vacations.
What you may not realize is that transportation is also a large retirement expense. After all, you have to get to the library to check out those books somehow. The costs of getting from point A to point B can add up.
Do you have enough money set aside? Let’s examine why healthcare and transportation are two of the greatest spending categories in retirement, and how you can best manage these expenses.
The Expected: Healthcare
While you may not know exactly what lies ahead in terms of your physical well-being, it’s best to be over-prepared. Who knows how many visits with primary care doctors, specialists, or physical therapists you might need over the course of a 20-year (or longer) retirement?
According to the Employee Benefit Research Institute, a retired 65-year-old couple with median prescription drug expenses would need about $301,000 in order to have a 90% chance to be able to pay for all of their healthcare expenses, including medications.1
The price of prescriptions can be a particular point of pain for older Americans. In recent years, the cost of prescription medication has risen at a significantly higher rate than food or apparel, for example (FIGURE 1).
Prescription Drug Prices Soar Above Other Common Expenses
Source: Consumer Price Index (CPI), US Department of Labor, Bureau of Labor Statistics, 2019. The CPI in the United States is defined by the Bureau of Labor Statistics as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
In fact, the prices for all drugs, both brand-name and generic, have increased 32% since 2014. If these prices were rising in line with the rate of inflation, increases would be just under 10%.2 One of the best ways to take control of even your most expensive healthcare expenses in retirement? Create a financial plan. Recognize the inevitability of healthcare spending and discuss with your financial professional what steps you can take to be prepared.
The Unexpected: Transportation
Transportation is more than just a way to get from here to there. It’s a critical component of your independence that connects you to all the people, places, and things you care about. There are a greater number of senior citizens living in the suburbs and rural areas than more walkable cities.3 So most retirees rely on public transportation or, more likely, their own personal cars, to accomplish their daily tasks.
Retired Americans mostly rely on driving as the primary means of mobility, but owning and maintaining a car can be expensive. Refilling your gas tank, changing your oil, and replacing your tires can be significant expenses. According to AAA, owning a car can range from an annual average of about $7,000 to about $10,400, depending on the type of car (FIGURE 2).
Older retirees may eventually find themselves without transportation or unable to drive, and in need of alternative methods.
Average Annual Vehicle Ownership Costs
|Type of Vehicle||Average Annual
Source: AAA, “Your Driving Costs,” September 2019
Luckily, there are public transportation options, community van programs, and ridesharing apps to help you stay mobile if driving is no longer physically comfortable for you. If you can’t catch a ride with a friend or family member, seniors can receive discounts on public transportation in many major cities or call upon van services, such as MetroAccess in DC or THE RIDE in Boston, which are inexpensive or free.
Ridesharing apps offer convenient, on-demand service, albeit at a possibly higher rate. Cost will vary depending on demand and location, but in many areas there are different options available at different price points. For example, Uber offers two private-ride options for one to four passengers. Uber Black is the more expensive option because it uses luxury cars, but the app’s UberX service, which does not, is often significantly less expensive.
If you’re open to sharing a ride with other users heading in a similar direction, Uber and Lyft also offer even less expensive, non-private options, called UberPool and Lyft Line, respectively.
As you live, relocate, or travel during this time, consider your transportation budget. Your financial professional can help you create a plan to cover this surprisingly large expense so you can stay connected to friends, family, and the places you love.
Planning Is Power
Healthcare and transportation are two of the greatest expenses in retirement, but they are just two of many. Retirement costs, big and small, can be anticipated, like healthcare, or surprising, like transportation, but you must be ready either way. All things considered, planning ahead can help you take control of your retirement and focus on the things that really matter—like that grandparents’ day at school.
Talk to your financial professional today about how you can best prepare financially for retirement.
1 Employee Benefit Research Institute, “Savings Medicare Beneficiaries Need for Health Expenses in 2019: Some Couples Could Need as Much as $363,000,” 5/16/19. Most recent data available.
2 GoodRx, “Which Health Conditions Have Seen the Biggest Drug Price Spikes Over the Past 5 Years?,” 9/10/19
3 Pew Research Center, “What Unites and Divides Urban, Suburban, and Rural Communities,” 5/22/18. Most recent data available.
This information does not take into account the specific investment objectives, tax and financial condition of any specific person.
This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed.