Dan’s post ‘Insomnia and the Back of an Envelope’ motivated me to review our expenses. Our top five categories are property taxes, home/car insurance, utilities, groceries, and healthcare premiums/deductibles.
- Our home property taxes increased 23% from 2023 to 2025 while our home value increase 17%. The value of our ten-acre plot went down 1.6% from 2023 to 2024, but then increased 23.5% from 2024 to 2025 and property taxes increased by 30%.
- Home insurance went up 46% from 2023 to 2025, while the insured value went up 8%. The car insurance remained unchanged (my car insurance went down $6 and my husband’s went up $59). Surprisingly, our umbrella insurance went up 30% from 2024 to 2025. (no claims, no accidents, no tickets)
- Electric was up 15% even though our usage dropped 1.3% from 2023 to 2024. The other utilities only went up 1%
- My healthcare premiums (Medicare Supplement) went up 9.5% from 2023 to 2024, but my husband’s (Medicare Advantage) remained unchanged. Our dental insurance went up 8.1%. I haven’t seen the increases yet for 2025. The Part B Medicare premium increased from $164.90 in 2023 to $174.70 (5.9%) in 2024, and to $185 (5.9%) in 2025. The Part B Medicare deductible increased from $226 in 2023 to $240 (6.2%) in 2024, and to $257 (7%) in 2025.
These categories make up over half our spending. Adding in groceries gives me the top 5 line items of our spending. Home maintenance hasn’t been an issue since we recently built, but over time, that could be a contender. So going forward, I’ll continue to track these top 5 categories. (Kinda the 80/20 rule.)
In the past, I’ve used a 3% inflation factor to forecast expenses. What inflation factor do you build into your assumptions? Are you seeing higher percentage increases in your top 5 categories of spending?
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I’ve been using 3.6% as our inflation factor. The other side of this is expected rate of returns. I’m using 4.5% for tax sheltered accounts and 2.0% for the other accounts which include cash, bonds and stocks. I’m using numbers that imply slightly higher inflation and lower returns. I run these numbers through my planner which is inflation adjusted and a couple of Monte Carlo simulators.
Our top 5 includes certain taxes, so I’ve included the top 6 expense categories for 2024:
1. Rents = 13.56% (decreased 3.6%).
2. Personal Travel = 11.36% (increased 559%).
3. Dining = 9.23% (increased 30%)
4. Insurance non-health = 7.48% (increased 3.6%)
5. Tax = 7.05%
6. Groceries = 6.85%
Personal travel expense increased substantially in 2024, due to care requirements for family.
Some explanation is necessary:
1. “Rent” includes a 10×20 ft. storage unit in Illinois and a resort fee in Arizona. We own our home in the resort. We sold a RV in 2024, eliminating that site rent).
2. “Personal travel” during 2024 included three cross-country long distance travel (air, car rental, motels) for care of a family member and three RV “vacations” totaling about 8,000 miles.
3. “Dining” excludes groceries. Our dining costs have increased as we now have one meal a week dining with friends. We also want to support the restaurant in the resort, dining there for an additional meal each week. Add a few meals in town with other friends each month.
4. “Insurance, non-health” includes home, long term care insurance, insurance for two RVs and for a car. One of the RVs is stationary (we call it our “lily pad”) and the other is a small Class B motorized unit.
5. “Tax” includes Federal and State income taxes as well as personal property tax. It excludes sales tax, Medicare and health insurance premiums.
6. “Groceries” exclude dining.
In 2024 we spent about 68.4% of our income derived from Social Security and Pensions. We spent none of the RMD.
Thanks for sharing, Norman! That was very helpful. Our expenses were at 65%, but this year they increased to 69% of SS and pensions, similar to what you mentioned.
One of my biggest expenses is travel and that has gone up but because I’ve chosen to upgrade my experience so I can’t compare easily. Dining out has gotten out of hand. A few nights ago for a mediocre Italian meal with two glasses of wine at a strip mall Italian restaurant we paid close to $100 which would have been ok but the meal was so unimpressive that it didn’t make sense. Also, a latte used to be about $3 but now it’s $5.
My biggest expenses:
Income tax: 14.87%
Housing: 7.66%
Medical: 4.44%
Car: 4.13%
Food: 2.55%
Property tax is included in housing.
Yes, everything is going up – your income had better go up too! As a director of the village tax board, I just voted to increase my village taxes by 5.85%.
I just read that our county will increase spending by 6%. Ouch!
Y’all made me curious. According to Quicken, my top five expenses based on the last 2 years:
Taxes 22.9%
Vacations 22.0
LTC Insurance 9.0
Groceries 5.2%
Charities 4.0%
I like that vacations make your top five!
Cheryl, I don’t drill down into the expenses as deeply as you, but I bet my numbers would be close to your own. Insurance has definitely been climbing beyond inflation. Property tax in Ohio is beyond inflation due to the state shifting more of the burden for public (and now private) education onto homeowners.
I emailed our insurance agent to understand the increases, but haven’t heard back yet. As I understand it, Insurance companies operate on a national scale and pool risks across many states. So even though we’ve never made a claim, I’m curious if disasters in other states (California fires and east coast hurricanes) are impacting our insurance premiums.
I found an article that our county is expecting to increase spending by 6% in 2025 and 2026, so I’m expecting our property taxes to increase likewise.
Most retirees cover monthly spending with guaranteed income (social security, pension, and/or an annuity). At least social security has a cola (2023 8.9%, 2024 3.2%, 2025 2.5%).
I don’t bother forecasting expenses. From my spreadsheets, over the last 3 years, here are the average annual changes for actual spending in various categories:
Utilities (gas, electric, internet, phone, trash, sewer, water): +5.2%
Real Estate Taxes: +1.7%
Insurance (home, auto, umbrella): -3.9%
Groceries (includes toiletries, misc. items from Costco, etc.): +0.2%
Vehicle Maintenance: -32.4%
Ken, your comment illustrates how variable all this can be.
You’re correct, Dick. Here are talking points behind the numbers:
1) Utility costs seem to be rising faster than overall inflation. The aggregate increase would have been even higher except that I cut out cable TV, which dropped our monthly internet services cost considerably.
2) Our well-managed township/school district is doing a good job holding the line on tax increases.
3) I changed insurance providers in 2023, which accounts for the overall drop in insurance costs.
4) I’ve been surprised that our grocery costs have hardly increased over the years. Not exactly sure what to attribute that to. Our 2021 grocery spending was almost identical to our 2024 spend.
5) Our vehicles are reliable, and one of the two hardly gets driven at all now that I’m retired. But this is a category that can change dramatically year-to-year.
I would love to report those percentages for home insurance, property taxes, and groceries. Nice! Our home insurance went down when we switch companies, but now back up to where it was.
Those things you mention are not driven primarily by inflation so applying a % is difficult. Their cost can rise dramatically or not much.
Insurance is driven by experience, the use of health care services, and can be significantly affected a just few claims. Medicare premiums are 25% of total spending.
‘’Property taxes are driven by local, primarily school, budgets and changes in the tax base.
Electric rates are approved by utility commissions and usually reflect building/construction projects of one type or another – sometimes after weather emergencies. There are two parts to what you pay, generation charges and distribution charges. They may be different suppliers even though you receive one bill.
I agree that each cost has one or more drivers, but I’m at a loss to figure out the driver. For example, my health premium is up 9.5% from 2023 to 2024 but I didn’t go to any doctors using that health insurance. I used my company’s health insurance in 2023 for all my health appointments before I left. Same with home insurance – no claims, but I expected our cost would go up in relation to the increase in home replacement value. Instead the cost went up 46% and the replacement value went up 8% from 2023 to 2025.
Those increases are based on many factors, the least of which is your personal experience. Health insurance premiums are based on the experience of the entire risk pool.
Your home insurance is affected by the insurers claims anywhere it underwrites coverage, so you and I are paying for the high claims in say North Carolina and other natural disaster areas.
So I’ll call this pool-based risk.
Pool-Based Risk: Costs borne by individuals may increase based on the aggregated risks or demands within a shared risk pool — whether for healthcare, insurance, or taxes.
Healthcare Premiums: a group has higher claims (e.g., sicker population, expensive treatments, pandemic), the average cost goes up, and insurers raise premiums.
Home Insurance: Disasters (CA fires or NC hurricanes) mean higher aggregate losses. Insurers spread this cost across everyone in that pool.
Property Tax: Local government needs more funding for schools, new development, infrastructure, or debt, and the tax burden is shared across the property owners.
Pretty much what I said isn’t it?
Yup..
Thanks Ron!
What I might try is to list the annual expenses for the top 5 categories plus ‘everything else’ to get total expenses for 2022-2025 since I have that data. Then I’ll use a different inflation factor for the top 5 categories and 3% for ‘everything else’ to model our expenses. Trying to keep it simple, but still want to see the impact over the next 20 years.
What inflation factor do you build into your assumptions?
Below are statistics for the US CPI since 1913 through 2024 for various consecutive rolling periods that may help as a guide:
Sorry, the data doesn’t copy/paste directly while retaining formatting from my Excel worksheet as I had hoped, but should still give you indications.
Jan. – Dec. Annualized Change
1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr
[1913 to Present) Number of Periods
112 111 110 108 106 103 93
Mean (average)
3.255% 3.243% 3.236% 3.191% 3.099% 2.992% 3.050%
Mean, Geo (compound rate)
3.149% 3.155% 3.163% 3.138% 3.057% 2.960% 3.033%
Median (middle)
2.680% 2.465% 2.529% 2.579% 2.595% 2.662% 2.913%
Minimum
-10.825% -9.797% -8.677% -5.410% -4.362% -2.669% -1.583%
Maximum
20.438% 19.265% 17.671% 13.499% 9.930% 8.669% 6.368%
1 Std. Dev.
4.749% 4.323% 3.935% 3.321% 2.956% 2.586% 1.862%
2 Std. Dev.
9.498% 8.647% 7.870% 6.643% 5.912% 5.173% 3.723%
1 Std. Dev. Range
Low
-1.494% -1.080% -0.699% -0.130% 0.143% 0.406% 1.188%
High
8.004% 7.567% 7.171% 6.512% 6.055% 5.579% 4.912%
2 Std Dev. Range
Low
-6.243% -5.404% -4.634% -3.452% -2.814% -2.180% -0.674%
High
12.753% 11.890% 11.106% 9.834% 9.011% 8.165% 6.773%
Monthly Annualized 1945 thru YE 2024
1 Std. Dev. 1.540%
2 Std. Dev. 3.080%
Mean (average) 3.606%
Compound Rate (geo. mean) 3.594%
Median (middle) 3.438%
Based on the long-term history, and especially since 1945, an annual 3.6% or 4.0% CPI inflation rate might be a better option.