Many people can’t wait for retirement to come so that they can enjoy more free time with family and friends, focus on their hobbies, travel and do more of what makes them happy and relaxed. After a stressful life working 9 to 5, it’s only normal to look forward to enjoying the perks of retirement, including the financial ones.
80 percent of one’s salary should be enough in retirement to live a good life and enjoy your golden years. At least, in theory. In reality, some of the costs in retirement might be bigger than expected, derailing your plans for a relaxed and carefree life.
To make sure the retirement of your dreams is not just that, a dream, here are 8 things you should pay attention to as they might cost you more than you’ve imagined. Be prepared to consider these when retiring and avoid unpleasant surprises.
Important Things That Cost More In Retirement:
Health insurance could cost more
If your employer was the one that paid your medical insurance during your employment years, in retirement you might need to pay more for health insurance. According to Danielle Roberts, founder of Boomer Benefits, “Medicare coverage costs $135.50 minimum—more if you are in a higher income bracket. This only covers 80 percent of your costs and you pay the rest in deductibles, co-pays, and co-insurance.”
Care could cost more
Healthcare costs in retirement cost around $280K per couple, as detailed by Fidelity. Apart from paying more for health insurance, retirees may have to take more money out of their pockets for health care services too.
According to Riley Adams, CPA and founder of Young and the Invested, it is important for future retirees to take such costs into consideration when drafting their retirement budget. “These healthcare costs are more expensive in retirement because as you age, you tend to require more medical care,” he explains, and not many people have enough money saved for unforeseen situations.
Travel expenses can cost more
Most future retirees dream of traveling more during their golden years, as they will no longer be tied to a 9 to 5 work schedule. Unfortunately, traveling might come with a cost. As explained by Brandon Renfro, PhD, a professor and financial planner, retiring at the standard age, which is mid-sixties, will most probably include a lot of traveling in the first years of retirement. This means that you will be spending more.
To make sure you’re not taken by surprise by the cost of travel and don’t end up with an empty retirement account, consider higher early retirement travel costs when setting up your plan for your retirement years. Also, it would be better to make larger withdrawals at the beginning of retirement and smaller ones later on.
Property taxes can cost more
No matter how you look at it, you still have to pay property taxes one way or another. Given that real estate prices constantly fluctuate, property taxes might also increase after you retire. In fact, according to Logan Allec, CPA and owner of the finance website Money Done Right, it’s a sure fact that retirees will pay higher property taxes in retirement than they do today.
To prevent such increasing taxes from ruining your long-awaited retirement, include this increase when you set up your retirement budget.
Entertainment can cost more
One of the things that people dream of in retirement is free time. Free time to do the things that you like, such as going out to dinner more often, going to the movies, the theater, and other cultural and entertaining events.
Andrew Herrig, founder of the financial advice website The Wealthy Nickel explains that the free time in retirement can come back to haunt you as it becomes more tempting to fill it with entertaining activities. “Without a good plan to fill the void of time left when you no longer have a 9-5 job, it can be easy to overspend,” he warns.
To avoid overspending, you can find a pleasurable activity that is not that expensive. You can try gardening, painting, bird watching etc.; or you can simply spend more time with your family, and grandchildren. And don’t forget to always ask about senior deals and discounts whenever you go out for lunch, cinema or the like.
Housing can cost more
This is not universally valid for all retirees, but in some cases, housing costs might get bigger in retirement. For instance, if you choose to live in an assisted living facility or retirement community with medical services included, you might have to pay more for overall housing. Costs for maintaining a standard home might be around $600 per month, while the national average for living in an assisted facility is around 4,500 a month, according to the American Healthcare Association.
Relocating can cost more
It’s very common in retirement for retirees to move to a smaller home in order to save money. But downsizing comes with costs of its own, namely moving costs. According to Mike Glanz, CEO of HireAHelper.com, downsizing isn’t just about packing your things and moving. Seniors can’t do this entire operation on their own, so they’ll most likely need professional help.
The average price for full-services floats around $2,500. This amount is not peanuts money, especially for someone who is on a fixed budget. A cheaper option would be for the movers to do the heavy lifting while the renting and driving of the moving truck remain your responsibility. This way, you might be able to save around $1600.
Family can cost more
As you get older, your family usually gets bigger. You become a parent, then a grandparent, a great-grandparent (if you’re lucky) and that’s the beauty of life. But a bigger family can come with additional costs that you might not have anticipated before retiring.
“An expanding family could mean more money spent on travel to attend little ones’ births, birthday parties, recitals, and sporting events,” says Allec. Not to mention more gifts for birthdays, Christmas and other important holidays and family events, and the icing on the cake: contributions to college funds. All these can add up and derail your retirement budget and plan.
However, don’t let this list get you down. You can still make the most of your retirement period, it just requires some careful pre-planning. And not all things can cost more in your golden years, some might cost less. Read on to find out what:
- Transportation can cost less
Transportation costs might decrease during retirement as retirees spend more time at home instead of commuting. This can help them save on gas and car insurance.
- Life insurance can cost less
Apart from paying less for auto insurance, your life insurance coverage might also go down a few dollars. No longer having children to support, you should be able to reduce the amount of life insurance coverage and save money in this category.
- Recreation can cost less
Overall costs for entertainment might be higher in retirement, but recreation in particular might cost you close to nothing. This can be possible if you move to a retirement community that offers its members access to a recreation center, tennis courts, a golf course, etc.