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Great Advice From Our Experts

5 Retirement Expenses Most People Overlook

June 5th, 2018

We are inclined to think that in retirement our spending will decrease. While we will indeed see a decrease in spending, there are also expenses that can easily go up in retirement. Studies have shown that most people will need about 80% of their pre-retirement income to live comfortably in retirement. The 80% rule of thumb is all good and fine, but the fact is that most people will spend a huge chunk of their income on unplanned expenses. Here are five areas where retirees tend to spend more than they had planned:

Healthcare

The cost of healthcare continues to rise year after year. In fact, it is projected that average couple today will spend over $300,000 on healthcare during retirement. If you or your spouse is not healthy, you can expect the costs to be far higher. Medicare is running out of cash too and retirees should expect to pay more in out-of-pocket costs for medical care as funding for Medicare dwindles. Other costs you should factor in include dental care, vision and hearing care, long-term care, and prescription drugs, things that Original Medicare doesn’t cover. Even if you have supplemental insurance, the out-of-pocket costs can add up to a significant amount if you’re seriously ill. Don’t let your general well-being become the most jarring expense on your retirement.

Home Repairs And Improvement

If you’re one of those people who have paid off their mortgages, you can expect your housing costs to go down in retirement. But you should also keep in mind the costs of repairs and maintenance, which can be expensive, especially if your home is old. You may also find that you’ll need to pay someone to take care of some of the tasks you used to tackle, tasks like cleaning, snow removal, and lawn care. While the costs of these might seem minuscule or insignificant, they can quickly add up and eat into your income.

Travel And Entertainment

Since you won’t be spending your time at work in retirement, you’ll have to fill up your time with something else. Many new retirees have said that traveling is one of their top priorities and it’s not hard to see why. When you’re working, your ability to travel is limited to vacation time. When you retire you have all the time in the world to see places you’ve always dreamed of. This means you’ll spend more time on the road, which can be really expensive, especially if you’re traveling to far-off destinations. Even you if you’re only visiting nearby places like parks or museums, the ticket costs can be quite high, especially if visit more often.

Taxes

Most people in general, don’t think much about how taxes will impact their retirement. Taxes can severely deplete your retirement income if most of your savings are in traditional retirement accounts. Interest rates and withdrawal taxes can punch a hole in your budget. To avoid the negative impact of deferred tax assets, the best solution is to move your savings to Roth accounts, this way you can prevent unforeseen tax charges. Another way to reduce tax burden is to transfer some of your assets to municipal bonds, which are tax exempt. Whatever you do, you have to come up with strategies that will help you minimize your tax bills in order to have sufficient income to live off of in your golden years.

Long-Term Care

No one would ever wish to go a nursing home or assisted living facility, but the fact is that most people will need long-term care assistance as they age. According to the U.S. Department of Health and Human Services, over 50% of people turning 65 today will require some form of long-term care at some point. If you don’t have enough saved or long-term care insurance, it could be the worst mistake of your retirement if you get sick. One estimate shows that it cost over $80,000 a year to live in a nursing home, and that’s just for a shared room, a private room can cost up to $90,000 a year. This is huge and if you don’t have a comprehensive health insurance for this kind of expense, your retirement savings could be depleted within a few years.

There are many other unforeseen expenses that we are going to encounter along the way. We may not be able to predict all of these expenses, but at least we can prepare for them. Make sure your retirement fund as well as yourself, are ready for retirement and all of the surprises that come with it. Call now for a free consultation, and make sure that you Plan Smarter & Live Better.