Expenses That Can Blow Your Retirement Budget
Retirements can last 30 years, but will your savings? To make your retirement finances last as long as you do takes good planning and anticipation of expenses. Here are four of the fastest-growing categories of costs and tools to help with your budget planning.
- Health Insurance And Medical Expenses
Not only do healthcare costs rise several time faster than overall inflation, seniors need more healthcare services as health changes with age.
If you plan to retire before age 65 and you are eligible for Medicare, you'll need to budget more for health insurance premiums and out-of-pocket costs than you may think. New federal health exchange plans cost considerably more than many people were used to paying when they received employer health insurance, studies indicate. In addition to higher premiums, deductibles and out-of-pocket costs may be significantly higher than you were used to paying because plans often require paying high deductibles before prescription and doctor costs are met. You can get an idea of the cost of health plans at Healthcare.gov. If your income is between $11,490-$45,960 (individual) or $15,510 - $62,040 (couple) you might qualify for a subsidy that would help lower the costs of your premiums.
If you already receive Medicare don't be complacent about increasing costs in your Part D, Medigap or Medicare Advantage plans and changing health needs. Review your Medicare coverage every year during the Medicare Open Enrollment period October 15 through December 7th. You can use tools found on Medicare.gov to compare health and drug plans, and select a better plan if it would save you money. If you have questions or problems with your Medicare coverage, you can get free, unbiased, one-on-one counseling from your State Health Insurance Assistance Program (SHIP). To find a counselor visit Shiptalk.org.
This category includes the fastest escalating costs that seniors face during retirement. Even if your mortgage is completely paid off, you still have plenty to budget for. This includes real estate taxes and homeowners insurance, both of which have grown by almost double-digit rates over the past decade. Depending on the size of your house and the area of your country, consider what you will have to pay for utilities and home heating expenses. If you heat with oil your costs have grown by more than 250% since 2000. Don't forget the cost of lawn care, annual maintenance and repairs. A common rule of thumb is a budget of 2% - 4% of the value of your home for these annual costs. If you plan to stay in your current home another 20 or 30 years consider the cost of painting or the possibility of replacing the roof or major appliances. Most reputable financial advisors say don't take on major debt in retirement, but consider downsizing and moving to an area with a lower cost-of-living.
- New Vehicles And Repairs
The car you are driving today is probably not going to last your entire retirement. You need to budget for vehicle, insurance, taxes and title fees, tires and service, or expenses for comparable transportation. Consider buying a good used car. Unlike buying a home, vehicles, including recreational vehicles, don't appreciate in value and lose up to 40% of their purchase price within the first two years. Save that money and start your search with a low-mileage dependable used car that's at least two years old. To avoid new car mistakes and to find links to other resources to help, read the Top 5 Biggest Mistakes When Buying A Car.
- Financing An Adult Child
Financial advisors say that borrowing by adult children is on the rise. And virtually all agree that helping adult children financially is one of the most "deadly" retirement budget killers. Many retirees and those still saving for retirement have put their future income at risk by helping their children purchase a home, or pay for other expenses. Worse, many seniors have been financially victimized by children or grandchildren. Parents and grandparents are often caught in the emotional dynamics, and fearing estrangement if they say no. Too many seniors, due to advanced age, may not be fully aware that abuse is taking place. If you think you could never overlook a request for financial help, either plan to have lots of assets or consider seeking counseling and support from others in similar circumstances. For more information, see What To Do When You Suspect Financial Abuse from Consumer Reports.
- Try this interactive online worksheet to help you estimate your monthly expenses: Vanguard Retirement Expenses Worksheet.
- The nonpartisan Employee Benefit Research Institute has developed the Choose to Save website to provide consumers with a wide variety of free savings tools and information to help you plan for a more secure retirement.
- To give your retirement budget a makeover, it helps to understand the type of person you are. Take the Retirement Personality Profiler quiz and find out! Determining your personality type may help you flag some action items that, up to now, you may have neglected or overlooked.