What The Average Retirement Cost in 1985 Compared to Today

Many people assume retirement costs have risen simply because everything is more expensive than it was 40 years ago. That's true, but it doesn't tell the whole story.

The bigger shift is where retirees spend their money. In 1985, retired households spent an average of $15,494 per year. Today, households headed by someone age 65 or older spend about $61,432 annually. 

Housing and health care now consume a larger share of retirement budgets than they did four decades ago, while food and transportation take up less room than many people might expect. Looking at those changes can help you see how your retirement savings stack up against today's realities.

Retirement spending has nearly quadrupled since 1985

The average retired household spent just under $15,500 per year in 1985. That works out to around $1,300 per month. Today, households headed by someone 65 or older spend an average of $61,432 annually, or more than $5,100 per month.

Part of that increase comes from inflation. Homes, cars, medical care, and everyday necessities all cost more than they did in the mid-1980s. But retirees are also spending more dollars on major expenses than previous generations ever had to budget for.

Housing has become an even bigger expense

Housing was always a large expense for retirees, even in 1985. Retired households spent about $4,900 annually on housing, which is about 32% of their budgets. Today, retirees spend more than $22,000 on housing each year. That accounts for about 36% of their total spending.

That percentage increase may not seem that dramatic at first glance. However, the dollar increase certainly is. Housing costs are more than $17,000 higher per year than they were in 1985.

Property taxes, homeowners' insurance, maintenance expenses, utilities, and rising home values have all contributed to higher housing costs. Many retirees are also entering retirement with mortgage debt, a trend less common among previous generations.

Health care's share of the budget continues to grow

Health care is one of the few spending categories that takes up a larger share of retirement budgets than it did four decades ago. In 1985, retired households spent an average of around $1,600 annually on health care, or about 10% of their total spending. Today, health care costs average nearly $7,800 per year and consume roughly 13% of retirement budgets.

Health care costs have historically risen faster than overall inflation. While broad inflation has averaged around 2% to 3% annually over long periods, health care costs have often increased at rates closer to 5% to 7%.

The result is that retirees frequently devote more of their income to Medicare premiums, prescription medications, supplemental insurance, and out-of-pocket medical expenses than previous generations did.

Food costs have shrunk

Food prices have risen a lot since the 1980s, but food actually consumes a smaller percentage of retirement spending today.

Retired households spent about $2,600 on food in 1985, which is around 17% of their budget. Today's retirees spend around $8,000 on food, but that accounts for only 13% of total spending. 

That highlights just how fast other expenses have grown. Housing and health care have expanded enough to claim a larger share of an average retiree's budget, even as grocery prices have increased.

Transportation has remained stable

Retired households spent about $2,700 on transportation in 1985, accounting for roughly 17% of spending. Today's retirees spend more than $9,500 per year on transportation, but that accounts for only around 15% of their overall expenses.

Vehicle pricing, insurance premiums, repairs, and maintenance costs may have all increased dramatically over the years. However, retiree budgets have grown even faster, which has helped transportation costs take up a slightly smaller slice of the overall spending pie.

Social Security checks stretched further in 1985

The average monthly Social Security benefit for retired workers was around $479 in 1985. That amounted to around $5,748 per year. While those checks were smaller than today's average benefits, retirees were also facing much lower housing and health care costs.

In fact, the average retired household spent around $15,500 annually in 1985. A typical Social Security benefit covered a large share of their annual expenses, more so than it does today.

Modern retirees receive larger monthly benefits thanks to decades of cost-of-living adjustments. The challenge is that some of the biggest retirement expenses, particularly housing and health care, have climbed steadily, too.

What today's workers can learn from the last 40 years

The lesson from the last four decades isn't only that retirement has become more expensive.

The bigger takeaway is that spending has become increasingly concentrated in a few essential categories. Housing and health care now account for a larger share of retirement budgets than they did in the 1980s, and both have a history of rising faster than general inflation.

For workers building a retirement plan today, paying attention to future housing costs and health care expenses may be just as important as growing investment balances. Retirees who prepare for those costs in advance are often better positioned to handle whatever the next few decades bring.

Bottom line

Retirement costs have risen far faster than many people realize, climbing from about $15,500 per year for retired households in 1985 to more than $61,000 for today's retirees. Housing and health care now consume nearly half of the average retiree's budget, making those expenses some of the most important factors in any retirement plan.

Retirees today spend more on health care alone than retired households in 1985 spent on housing and health care combined. That shift highlights why checking your projected housing and medical expenses can be just as important as tracking your account balances.