You’ve been making and spending money your whole life and now its time to stop worrying about working for more money, relax, and spend, but did you budget for everything? Of course, we cannot know every expense that is going to be thrown at us, but the following is a list of critical expenses that many people do not prepare for when determining the amount of money they need to save to retire comfortably.
Many people overlook the cost of healthcare in retirement. It can get rather expensive in some situations. It is important to be educated about Medicare and the healthcare expenses it will and will not provide because it is not comprehensive. Depending on your health and particular needs, you may need to consider additional healthcare coverage.
According to a survey completed by the U.S. Department of Health and Human Services there is a 70% likelihood that the average 65-year-old will require some form of long-term care as they continue to age. Long-term care can be very expensive depending on the type and length of care necessary. It is important to determine if you have sufficient assets to self-insure or if purchasing insurance is necessary in your situation.
We have all learned recently that inflation cannot be ignored. It is essential that you plan for the fact that your cost of living today is sure to be higher 20 years down the road even if you are spending your money on all the same things.
A 2018 AARP survey found that one third of adult homeowners expect their homes to need major renovations to live there throughout retirement. Home renovations are easily forgotten about, and the cost is frequently underestimated. Having an emergency fund set aside for both planned and unplanned home renovations is a wise idea.
Caring For Family Members
In recent years it has become more common for college graduates to live at home which may create additional costs for retired parents. Also, in some situations a retired individual may find it necessary to step in to take care of an aging parent which can come with unexpected costs. These costs can vary greatly and proactively preparing for these expenses will be beneficial in the long run.
Previous Business Expenses
It is common for business owners to underestimate the value of their personal expenses that the business pays for while they are working. It is important to pay attention to your budget as you approach retirement and ensure that all living expenses are being accounted for in your expected cost of living, even the expenses the business has covered in the past.
This consideration is a little different than some of the others because it is more difficult to predict. Outliving retirement savings is a real concern therefore it is important to work with your advisor to try and make an accurate estimate about your life expectancy and how long you need your money to last. Outliving savings will cause you to have to adjust your lifestyle and stretch remaining savings to make ends meet.
As you prepare for retirement it is important to take these costs into consideration and have a real conversation with yourself about which expenses (if any) you need to be saving extra for. Discussing these needs with your advisor is a great idea as they can help you estimate these expenses and formulate a plan with you on how to save for them.