8 Reasons You Shouldn’t Expect To Spend Less in Retirement
Many retirees expect to spend less in retirement than they did during their working years. This is because they are no longer commuting or having to pay for professional attire and client lunches. Additionally, mortgages are generally paid off and it’s not uncommon to see their taxes drop.
However, according to experts, expecting to pay less in retirement is a total myth. Here are eight reasons.
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More Free Time
According to Chad Gammon, certified financial planner (CFP) and owner at Custom Fit Financial, working actually helps control costs. Without a workplace routine, retirees spend extra free time shopping, dining out, traveling and pursuing hobbies.
Gammon's retired clients typically begin with living expenses estimated at $80,00 annually, but they push closer to between $100,000 and $120,000 annually.
Supporting Parents and/or Adult Children
Recent retirees often find themselves in what Gammon called “The Sandwich Generation”: They are giving money to both the generation ahead of them and the generation behind them. Retirees’ aging parents may need help paying for in-home care and adult children may need help paying rent while trying to launch their careers.
Inflation
Per Melanie Musson, insurance and finance expert at Clearsurance.com, current and future retirees will experience higher costs than anticipated even if they change absolutely nothing about their lifestyle.
In 10 years, with a 3% average inflation rate, purchasing power is going to diminish by a whopping 26%, Musson said. This means that, to maintain the same lifestyle, you will have to spend significantly more.
Increased Healthcare Expenses
Retirees no longer receive employer-sponsored health insurance. And, according to Ali Zane, CEO and credit consultant at Imax Credit Repair Firm, Medicare will not cover all health-related expenses.
You likely will be paying out of pocket for supplemental insurance, certain prescription medications, dental, vision and hearing. Fidelity reported that an average 65-year-old couple will spend $12,850 on healthcare in their first year of retirement alone. Plus, as you age, you are sure to be met with additional health challenges requiring increased medical care.
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Home Maintenance
Just like you aren’t getting any younger, neither is your home. Systems are bound to fail at some point or another. And that means additional expenses related to roofing, HVAC systems, plumbing and your home’s foundation. Zane stated that, in homes owned longer than thirty years, major repairs typically run anywhere from $8,000 to $25,000 annually.
Home Support Services
Zane said tasks that seemed simple for you to perform at 55 are often much more complicated to perform at 75. It’s also unsafe to be climbing ladders as you age. This means that tasks like cleaning, yard work, home maintenance, pest control and snow removal will have to be outsourced — for a price.
Per Zane, a cleaning service can be $100 to $200 per week, yard cleaning can be $150 to $400 per month and snow removal can be $1,500 to $3,000 per year.
Long-Term Care Policies
According to Zane, today’s 65-year-olds have a 75% chance of needing long-term care in the future — and Medicare will not cover these costs. Not only are policies expensive, but, if you failed to include a long-term care policy in your initial retirement planning, you will be paying higher premiums because of your advanced age.
Transportation
People tend to assume that because they are no longer commuting to work, their decrease in driving will translate to a decrease in transportation expenses. But this is not always the case.
As vehicles age, they require more upkeep and more expensive repairs. If your vehicle needs to be replaced outright, those are bound to be more expensive, as well. NPR reported that new cars currently hover around $50,000 (a historic high) and could reach $65,000 by 2036. Additionally, if you can no longer drive, prepare to spend hundreds of dollars a month on ride-booking apps.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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