You may think that your retirement expenses may be lower than your current cost of living, but the fact of the matter is that you will be adding new expenses to your plate. While you may not have considered them now, many will be necessities rather than discretionary. This article explains some of the major expense heads.
You might assume that your retirement expenses will be lower than your current cost-of-living. But - we're sorry to say - that idea might not be correct.
It's true that after retirement, you'll shed some of your current expenses. You won't need to pay for commuting costs, which means you'll probably spend less money on gasoline, tolls, parking, and vehicle wear-and-tear. You won't need to buy work-related clothing or visit the dry cleaners as often. You may not need high-speed internet or a cell phone plan with unlimited minutes. You won't pay out-of-pocket for professional association dues, conferences, continuing education and other career-enhancement services.
Ideally your mortgage will be paid-in-full, which means you'll drop a huge expense. Your children may have graduated and left the nest, which means you won't be covering childcare costs or educational expenses.
Given all these savings, how could your costs in retirement possibly be the same or higher than they are today?
The fact of the matter is that you'll add new expenses to your plate. Many of these are costs that you've never considered, and many of these are necessities rather than discretionary. Here are a few retirement expenses that catch people by surprise.
At a certain point in your life, you may not be able to climb the stairs, reach the kitchen cabinet shelves, or safely step in-and-out of your bathtub. You might find yourself in a wheelchair or using a walker or cane, and needing to adjust your home around this new reality.
If this happens, you may need to retrofit your home for medical reasons. Doorways might need to be widened in order to fit a wheelchair. You may need to install a residential stair lift to carry you up-and-down the staircase. You might need to buy a new bathtub with a hinged door, rather than keep your existing builder-grade tub. You might need to install grab handles in your bathroom.
These medical retrofits to your home may someday become a necessity, rather than an option. And when these expenses hit your wallet, you'll need to be ready.
No, we're not talking about an optional remodel, such as switching out your ceramic floor tile for a stylish travertine. We're talking about necessary renovations as a result of an aging home.
Over time, components of your home will start wearing out. Your roof will start leaking. Your HVAC will quit working. Your dishwasher, refrigerator and stove will break. The windows, gutters and fascia will need replacement.
When this happens, you'll need to be ready to shell out thousands if not tens of thousands to replace the parts of your home that have depreciated away.
If you've owned your home for awhile (15 to 30 years), you might be celebrating the fact that you're done with mortgage payments. But that doesn't mean that large home-related bills aren't still looming.
You hope that you've prepared your children for the rigors of the "real world"but the reality is that they're just starting their young adult lives. They're earning entry-level salaries while trying to start their own homes and lives.
You might be driven to help your children get established - particularly for big-ticket expenses such as their wedding, a downpayment on a home, or childcare expenses for your grandchildren.
You might be finished with paying for college, but that doesn't mean your kids or grandkids won't still ask for help from time-to-time. This expense is optional, of course, and your own retirement needs should come first. But be prepared to allocate a little money towards helping your kids and grandkids, if required.
It's tempting to think that Medicare will cover every dime of your treatment, but the reality is that you'll need to shed some out-of-pocket money for co-pays and deductibles.
The rules are complex, so we won't dive into the details in this article (describing the vast limitations and qualifications deserves its own article), but suffice to say that you'll need to budget some money for your medical costs. The notion that "seniors never pay for healthcare" isn't exactly accurate.
When you're retired, you'll most likely be living on a relatively fixed income. Yes, Social Security does make periodic cost-of-living-adjustments (COLA), and yes, your portfolio investments may grow, but it's possible that inflation and other cost-of-living increases might outpace the growth in your income sources. Don't assume that you'll retain the same purchasing power that you enjoyed at the start of your golden years.
Notice we didn't discuss the cost of hobbies, travel, and other discretionary purchases. We intentionally left these out because they're optional expenses; they won't "catch you by surprise".
But if you have the time to plan for an ideal retirement, you may also want to include space for this in your budget, as well. After all, you've worked hard throughout your life. You want a retirement you can enjoy.
The key takeaway lesson? Don't underestimate the amount of money you'll need in retirement. Use online calculators, read books, and work with a trusted financial planner in order to figure out how much money you'll need in retirement. Then create a personalized roadmap that will show you exactly how to get there.
Find the Right Financial Advisor for You
Free Initial Consultation. No Match Fees. No Obligation
Need a Financial Advisor in your area?