Not knowing how long we’ll live makes it difficult to determine how much money we’ll spend in retirement. Until such crystal ball exists, though, expert projections and others’ past experiences can serve as valuable financial planning tools.
With that in mind, there are certain expenses that are likely to stay about the same. Those include costs for basic needs such as: food, clothing, and utilities. Adjustments for inflation are still needed based on economic fluctuations.
Transportation costs, on the other hand, are likely to decrease. With no need for daily drives to and from work, retirees are likely to see a drop in gas costs, auto insurance premiums, and maintenance expenses. A couple may even decide to own only one car instead of two, further reducing their car payment expenses.
Any change to housing expenses during retirement depends on each person’s situation. If one has either paid off his mortgage entirely or is nearing that milestone, he is likely to see a dip in his housing expenses. But he will still have to account for rising home maintenance costs. Repairs to roof, plumbing, electrical and furnace, among others, are often costly and to be expected as homes age.
At the same time, in a booming housing market, those who have amassed significant equity can downsize. By buying a smaller home and investing the rest of the funds wisely, they will likely be boosting their retirement savings for several years. And a smaller house or opting to rent also reduces home maintenance fees.
Longtime renters, though, are likely to see an increase in their housing expenses. The rise in those costs depend on the length of their lease, their location, and local rent-controlled ordinances.
An overlooked yet important expense that is likely to increase involves travel and leisure. With more free time available than ever before, retirees, especially during the first two years, tend to increase spending on outings, social events and trips. Such expense typically decrease in the second and final stages of retirement. But with lifespans increasing, many seniors are experiencing 2-3 decades of leisure time before significantly slowing down.
Healthcare costs too are virtually guaranteed to rise during retirement. Even with Medicare, retirees must pay for deductibles, out-of-pocket costs, and premiums. According to a recent study, seniors can expect to spend one out of every seven dollars on health care by 2035. And that doesn’t account for long-term health care costs for specialized nursing care associated with age-related illnesses. Chronic and debilitating conditions such as Alzheimer’s disease, typically require round-the-clock professional care that can deplete even sizeable nest eggs rapidly.
Given these projections, most financial professionals agree that the typical person will need about 80% of his previous income to maintain his pre-retirement quality of life. Building up that kind of retirement income requires years of commitment to saving and investing during the working years.
At Silverman Financial, we are committed to helping you finance a stable and fulfilling retirement. We work with you and meet regularly to review your personal portfolio, make adjustments as necessary, and help you make wise financial decisions for your future.