People base their retirement plans on projections of how much they will spend once their earning years are over. Conventional wisdom holds that expenditure reduces after retirement, but this can be a risky assumption.
“As a retirement planning professional, I see incorrect assumptions made time and time again that people would spend less in retirement when in fact they spend the same or more,” said Nicholle M. Overkamp, founder of PowHERHouse Money Coaching.
“Through our expertise and over a decade of retirement planning,” she explained, “we see more often than not people spending at least the same as they did when they worked.” Contrary to popular opinion, spending less is less common.”
If you’re putting together a retirement plan for yourself or someone you care about, consider the following before assuming that life will be cheaper once you leave your job.
You’ll have a lot more time to live your life – and spend your money.
People are living longer lives and enjoying greater late-life health than ever before, which is great — but it may also be costly.
“People are retiring when they are still young, healthy, and want to stay active,” Overkamp added. “They have a lot more time than they did when they were working, and that time is frequently spent for travelling, spending more time with friends and family, non-profit work, and events – all of which equals to extra spending.”
Your healthcare costs rise as you become older.
You’ll certainly spend more time at the doctor’s office as you get older, no matter how long you live – and doctors aren’t inexpensive.
“As their bodies age, retirees will spend more on medical bills than they did throughout their working lives,” said Gregory Ricks, founder and CEO of retirement planning firm Gregory Ricks & Associates. “Medical expenses frequently lead to bankruptcy in retirement if people do not plan adequately.” Medicare premiums continue to climb, and healthcare will only get more expensive in the future as technology progresses and medical staff demand higher pay.”
Houses, like people, require costly repairs as they age.
One of the reasons individuals expect to spend less in retirement is that their mortgages are frequently paid off by the time their careers end. However, they should keep in mind that older residences are typically more expensive.
“Your house is another expense,” said Damian Dunn, CFP and vice president of counselling at Your Money Line. “Will you retire to your long-time residence?” Your ‘forever’ home has aged alongside you. Your house may be approaching the point when costly repairs are required, just as your income has dropped. This is especially true if you have put off maintenance for a long time. In addition, would your property require changes so that you can age in place safely and comfortably?”
In retirement, utility bills frequently rise.
According to the Economic Policy Institute, older workers are the least likely to work from home, implying that the majority of retirees have spent their working days on the job. Back at home, the water, lights, heat, air conditioner, and television were all switched off while they were at work.
Kathleen Peddicord, the original publisher of the retiring abroad newspaper Live and Invest Overseas, warns retirees that this will alter once their earning days are over.
“Your utility bills are going to rise now that you’re at home all day rather than at the office,” she said.
You’ll be charged for services you previously performed on your own.
Raking leaves, shovelling snow, cleaning gutters, and everything else that takes physical activity becomes increasingly difficult as you become older. Many retirees eventually find they can’t do it alone and must pay someone to do it for them.
“In addition to the rising cost of power bills, retirees frequently find themselves spending more on domestic expenses, such as cleaning and housekeeping care,” said John Castro, CPA and founder of JMC Accountants. “As you become older, these costs appear to rise, especially around the age of 75.”
Adult Children Have the Ability to Disassemble the Gears
The notion that your children are just your responsibility until they reach the age of 18 is an antiquated expectation. Children — and their financial demands — frequently follow their parents into retirement in the modern era.
“A person’s expenses may rise due to children who require financial assistance, whether due to the current economy, being in debt, or experiencing an unforeseen medical emergency, as I commonly see among many of my customers,” said Steve Sexton, financial adviser and CEO of Sexton Advisory Group. “Similarly, a person’s retirement expenses may increase if their adult children or family move to another city or state that needs extensive travel and there is a desire to visit them on a regular basis.” These kinds of unanticipated considerations aren’t usually considered into a retirement budget.”