While most of us think that our expenses will decline when we retire, that isn’t always the case. It may make sense logically that expenses will go down after all. You likely won’t be commuting to work, or buying work clothes or lunches out for business anymore, and in fact there may be some significant savings as well. For example, you may have paid off your mortgage so that your housing costs will be significantly reduced. However, not every retiree is the same, and for some retirees, their expenses can go up instead of down.
Housing
While it’s true that for many, a mortgage may be paid off and housing costs could decrease, there are also housing expenses that could cause increases for many retirees. In fact, T Rowe Price
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It’s also the case that many retirees do not pay off a mortgage prior to retirement, or that they have taken out a second mortgage and are in the midst of paying it off during retirement. Home repairs and renovations also tie up a budget during retirement years. Property taxes are another often overlooked expense that retirees forget when budgeting – and if you’re planning on selling and renting, don’t forget that the rental market may be different during your retirement than it currently is. To plan ahead for these expenses, try to determine where you’ll spend your retirement to the best of your ability, and make contingency plans that fit within your financial plan.
Healthcare
Healthcare is one expense that often increases with retirement, as retirees generally rely on Medicare for their healthcare and it may not cover everything that you need. In addition to what isn’t covered by your insurance, you may also have other healthcare expenses that add up in retirement, including a need for assisted living or long term care, or simply additional expenses due to living longer.
When planning for your healthcare in retirement, you’ll need to account for your potential longevity, and a financial planner may be able to help you with projections that can take different scenarios into account.
Discretionary Spending
Your discretionary spending is one area that can quickly expand a budget in retirement, depending on how you spend your time as a retiree. If you’re spending your new-found free time sampling new restaurants, traveling to new locations, or online shopping, expenses may add to up more than you expected. So, while you may not be spending funds on work related expenses, you may be filling your time with expensive activities instead. Other types of discretionary spending also add up due to convenience in retirement – for example, you may wish to pay someone else to clean your home or mow your lawn for you during your retirement.
As with any expenses, it’s important to plan for these discretionary expenses as best you can in your retirement, and enlisting the help of a financial advisor may leave you in a position where you feel more prepared for several potential scenarios.
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