10 Hidden Expenses in Retirement
Does your retirement budget cover all of these costs? If not, your retirement could be derailed. You may need to alter your strategy to account for these expenses:
Hidden Housing Costs
The first thing to consider is housing costs. Many fail to look any further than their monthly mortgage payments when estimating their long-term housing costs. Unanticipated home repairs are one of the most common hidden costs that could creep up on you in retirement. If it’s been a while since you had your home inspected, having it done again could help you identify potential problems before they become troublesome (and expensive) to deal with. If you plan to remain in your current home for the long-term, you should also factor in the cost of home improvements. As unpleasant as it may be to contemplate, you may need to add wheelchair access, or other disability-related alterations, to your home.
Uncovered Health Care
Next, it’s important to remember the cost of health care. Even with Medicare, it can be a pretty penny. However, many retirees are under the impression that Medicare covers more than it actually does. The result is, the hidden cost of healthcare can end up surprising you. It’s important to do the research into what it will cover, and what methods you can use to cover the costs of health care.
Next, there’s long-term care to worry about. The U.S. Department of Health and Human Services estimated that 70% of today’s 65-year-olds will require some kind of long-term care in the future. Not to mention, the cost of this care is rising. Some retirees may be able to reduce it in part by turning to their families for help, but those who can’t or don’t want to do this will generally cover these expenses one of two other ways: Out-of-pocket, or using long-term care insurance. Take your estate planning goals into account when deciding which option is better for you, personally.
Federal Income Taxes
Another thing you should be thinking about is federal income taxes. Believe it or not, they aren’t an expense that stops being of concern when your working years end. Assuming your income drops when you retire, your taxes likely will, too. But that doesn’t mean your federal income tax bill will fall to nothing. Certain types of retirement income, such as making withdrawals from traditional retirement accounts, are taxable. Even Social Security can be. If you’re looking for a way to lessen the burden of taxes in retirement, we may be able to help you with this.
State Income Taxes
Next, there are state income taxes to consider. Also, if you live in an area that levies local income taxes, those are also a concern. Some states tax Social Security benefits, and many tax certain other types of retirement income, too. Again, however, there are strategies, such as tax-deferred accounts, that can help with this. Reach out to us.
A Child in Crisis
This is another possibility. You may feel obligated to help when your child is struggling financially. However, the older you are, the more difficult it can be to do this. Helping your adult child financially may put your retirement savings at risk. Before offering your support, think about how much help you’re able to provide, and for how long. Also, have a conversation with your child in which you make the extent you’re able to help clear, and determine the terms of the arrangement.
Do you plan on traveling during your retirement? While having the time to do so is one of the best benefits of retirement, travel comes at a cost. It’s important that you have the money to not only cover basic, unavoidable expenses, but also enough to actually enjoy your retirement. Traveling is one example of this… Adding an “extras” section to your retirement budget, to account for things like it, might be a smart move.
People are Living Longer
People are, on average, living longer than they used to. While obviously, a longer life span is a good thing overall, it’s worth noting it means your retirement will last longer. You’ll need more money than someone in the past would’ve in order to not run out of savings partway through retirement. This added time also gives several of these costs we’ve discussed more time to increase. What can you do to be prepared for this?
Losing a Spouse
Something thing you will, unfortunately, have to contemplate when planning for retirement is the possibility of losing your spouse. Failing to properly prepare for this happening can leave you in a bad position financially. There are certain actions you can take to be prepared, however, such as purchasing life insurance and correctly utilizing social security benefits. Also, make sure your estate plan is up to date. An estate-planning attorney can help with this.
Lastly, there’s inflation to consider. The impact that inflation will have on your retirement cannot be ignored. This has become even more apparent recently, with prices soaring. Rising inflation has the potential to lessen the value of your money. It pushes up the cost of everything you buy. While no one knows for sure where inflation will go in the future, there are things you can do to “Hedge your bets” against it. Not to mention, there are some financial vehicles that may be able to help, as their value increases at a rate that accounts for inflation. Interested in learning more? Contact us.