6 Retirement Expenses You Can't Forget In Your Budget
When planning for retirement, most young clients put off thinking about retirement expenses to focus on ways to build their savings. However, proper financial planning requires preparation for future expenses, such as emergencies or healthcare. Considering how economic stability and prices can change over time, what young planners think is enough savings for retirement today could be seriously inadequate to live on once they retire. To prepare your savings to last throughout retirement, here are six essential retirement expenses to apply to your future budget:
Home maintenance adds up to one of the biggest retirement expenses retirees must face on top of other bills and taxes. While these costs can be curbed by paying off your mortgage or downsizing, home maintenance continues regardless of where you live. Roofing repairs are typically needed at least every 20 years and often forgotten about until the roof starts leaking. Additionally, home maintenance may need to be upgraded to manage long-term care, adding even more retirement expenses on renovation for senior walk-in showers, handrails, or lift chairs. Even if you choose to move homes, expenses in lawn care and landscaping may develop just to maintain the curb appeal for selling. Regardless of where you intend to live, home maintenance costs will follow you, and therefore must be accounted for in your retirement expenses.
Long-term healthcare, though difficult to think about, is one of the essential retirement expenses to plan for in your budget. Depending on the type of Medicare plan you have, numerous medical payments could be added, thus restricting your savings as well as your quality of healthcare. Here are some of the Medicare plans offered to seniors:
Medicare Part A: Though members of this insurance plan don’t typically pay a premium, as of 2022 Part A has set a $1,556 deductible for hospitalized members. Suppose a hospital stay goes over 60 days. In that case, you should anticipate an additional 20% charge of the Medicare-approved amount for most medical services you use unless supplemented by another coinsurance purchased to cover those costs.
Medicare Part B: As of 2022, Medicare Part B plans to charge a premium of $170.10 with a $233 minimum deductible. On top of these retirement expenses, retirees may need to consider additional expenses if their finances are deemed high-income.
Medicare Part D: Aside from the previous 2 plans, Medicare Part D prescription drug plans add separate premium charges to further reduce your already limited budget, even then these services may refuse to cover other necessities like glasses or hearing aids.
Worse yet, retirees who fail to apply for Medicare on time will also be charged late enrollment fees. Thus, ensuring your savings can support long-term healthcare expenses must take precedence during your retirement financial planning.
Taxation and Inflation
Since the pandemic, senior retirement expenses have significantly increased due to rising inflation and tax rates on benefit plans. Retirees typically expect to pay income taxes when withdrawing from their 401(k)s, IRAs, or pensions; however, most don’t expect income taxes to impact their social security benefits. As of 2022, single-filers with a combined income of around $25,000-$34,000 must now pay income taxes up to 50% of their social security benefits, with those of higher income paying 85%. Now with everyday goods and services inflated at 9.1% and rising, retirees must effectively prepare their savings to last the next 20-30 years while under the pressure of growing retirement expenses.
During financial planning, it’s essential to secure enough funds in your budget to cover emergency retirement expenses. Home repairs, damaged appliances, medical scares and so much more can happen during retirement that insurance may not support. Additionally, having emergency funds will help prevent wasting your savings and derailing your retirement plans too soon. Thus, setting aside an emergency fund for unexpected events is necessary for planning your retirement budget.
Entering retirement comes with newfound freedom and excitement to try new activities, but these experiences add to your retirement expenses. Though communities tend to offer many free or discounted deals for senior enjoyment like museums and movie theatres or summer travel cruises, such freedom extends only as far as your budget allows. As such, seniors and AARP members should take advantage of cost-saving options while traveling by using hotel and rental car discounts, staying with relatives, or vacationing during off-peak seasons for lower prices.
Leaving a Family Legacy
Seniors can inadvertently waste their savings by lavishing their grandchildren with gifts, frequent trips, and entertainment from movies to amusement parks. While it's helpful to set up a trust for your family’s future, each of these payments adds significantly to your retirement expenses to limit the financial legacy you leave those relatives. Whether the legacy holds treasured heirlooms or sentimental photos, it’s therefore fundamental that retirees curate all financial plans, including donations, in print before beginning retirement.
Young adults may not have started their retirement planning just yet; however, by accounting for retirement expenses early on you can secure savings and benefits to support the future life you desire. As these are just a few of the retirement expenses to account for in your financial planning, contact RPCSI today to learn more about retirement costs or how to plan for retirement today.