Retirement is supposed to be the best time of your life. You get to spend more time with family and friends, you have more free time to pursue hobbies, and there are no longer any financial pressures. But for many who have reached that goal, it’s important to make sure that your retirement expenses aren’t going overboard. Here are seven big expenses you need to watch out for in retirement.
Medical & Dental Expenses
Medical and dental expenses are the most common type of expense that retirees face. While Medicare often doesn’t cover dental expenses, these costs can be very expensive, as they’re not always covered by insurance plans or government programs like Medicaid. It’s often recommended that retirees purchase supplemental health insurance to help cover these costs.
Medical and dental expenses can also be a major cause of bankruptcy for retirees—especially those who have gone through an extended illness prior to retirement. According to CBS MarketWatch, the majority of people over 65 who file for bankruptcy do so because they cannot afford the cost of their medical bills.
Death of a Spouse
It’s a fact: the death of a spouse can be financially devastating. Even if you’re well prepared to deal with your own mortality, it can still come as a shock when you lose someone you love and depend on. There are many expenses associated with this type of loss, including the cost of their funeral and other arrangements, as well as any outstanding bills or debts they may have left behind (credit card debt is often an issue). The average cost for funeral is between $7000-$10,000.
The death of a spouse will have tax implications that must be considered. For example, the surviving spouse may be subject to a higher tax bracket since they are now filing as a single taxpayer. This means a possible lower standard deductions (and less favorable tax rates). Conversely, the surviving spouse may fall under a lower tax rate due to the loss of income. A trusted advisor can help you navigate these changes in your tax filings and ensure that you are getting the most out of all of your deductions.
Portfolio Investment Losses and Inflation
The question of how much risk to take when investing for retirement is a difficult one. The answer is dependent upon many factors, including your age and financial situation, as well as the time horizon before you need the funds. If you are still working or have a large amount of time left before retirement, having a higher risk tolerance can potentially allow you to achieve growth that will offset any short-term losses. However, if you are older and nearing retirement, it may be prudent to take less risk so that you do not run out of money before reaching your goal date.
Inflation can affect your portfolio in a few ways. First, it can reduce the value of your investments by causing the prices of goods to increase over time. This can occur because inflation causes the purchasing power of money to decrease, which means that people have less money to spend on goods and services. As a result, businesses must increase their prices to maintain profitability.
Second, inflation may cause interest rates to rise as well, which can negatively impact your investment returns. If interest rates increase, then investors will potentially receive lower yields on their investments and may therefore choose to invest in other assets with higher yields instead.
The key to a successful investment experience in retirement is to work with a Certified Financial Planner™ who can create an investing, spending and saving strategy for retirement. A prudent plan can take into account the volatility of the market, the rising cost of inflation and unexpected expenses.
Major Home Repairs
Major home repairs are usually unexpected, costly and emotionally draining. They can be a financial burden that you don’t need to add to your retirement planning. However, there are ways you can plan ahead for major home repairs so they don’t come as a surprise later in life.
Some of the most common types of home repair issues that require immediate attention include:
- Leaky roofs
- Broken windows/doors
- Faulty plumbing systems
- Structural damage (foundation cracks)
Children (or grandchildren needing money)
Children and grandchildren can also be a financial drain in retirement. It’s not just about buying them presents for Christmas or their birthdays, though that does add up. There are other costs that come with having children and grandchildren:
- Your own children will often need money for their expenses while they get established in their careers or for other expenses like graduate college tuition, housing, and car payments.
- Grandchildren might need money when they reach adulthood so that they can buy a house of their own or attend college.
This is where things can get expensive. If you’re relying on your retirement savings to help out your children and grandchildren, then it may be hard to maintain your lifestyle in retirement or have any money left over for yourself.
Travel Cost and Expenses
When you retire, you might not have the same amount of money coming in. You might be paying for travel costs and expenses out of pocket, meaning that you need to start budgeting for it now. Here are some things to consider:
- Traveling to see family. As a retiree, you’re going to have fewer obligations than before; this means that you can plan trips with your loved ones! If they live far away and you want to visit them often, make sure that airfare isn’t too expensive so that every trip is affordable on your budget.
- Traveling for leisure/vacation-related activities (generally). It’s important that retirees don’t neglect their savings when planning vacations. Even though retirement doesn’t require an income anymore, there are still bills like food and shelter that need paying attention too
Mobility and transportation costs
As you get older, transportation costs are likely to rise. The average American spends about $8,000 per year on car ownership and maintenance, but this number can vary significantly depending on where you live.
If you don’t drive or own a car, you may need to plan for transportation costs when you retire. For example, public transit can run between $5 and $50 per month depending on the distance traveled and whether it’s a bus or train. Of course services like Uber or Lyft are available and are very convenient to use. However, with rising gas prices and insurance costs, these fees can become costly depending on the number of times you use their service
Of course, there are many other ways of getting around besides driving yourself or taking public transit. You might consider getting rid of your car altogether and buying a bike instead!
In the end, the takeaway is that retirement has a lot of moving parts. You need to plan for everything from medical expenses to travel costs and even portfolio investments. These can add up quickly and make all the difference in whether or not you reach your goals.