Don’t Forget to Budget for These Retirement Costs
A budget can be one of your most valuable financial tools as you plan your retirement. Your budget can help you plan your required income and make smart buying decisions. Unfortunately, most Americans don’t use a budget. According to a study from U.S. Bank, only 41 percent of American households rely on a budget to guide their spending.
Even if you don’t use one today, there’s nothing saying you can’t change that habit in retirement. However, you may find it difficult to project your future expenses. After all, you can’t predict the future. You can, though, use your current expenses and your plans for retirement to develop an accurate estimate of your anticipated spending.
Your regular bills, such as utilities, insurance and credit cards, should be included in your budget. So, too, should money for groceries, dining out, entertainment and other discretionary costs. You may even include money for travel or your favorite hobby. Below are four other costs you may not want to ignore. They’re easy to forget, but they can have a big impact on your retirement spending.
Planning on being mortgage-free in retirement? That could be a wise move, as the elimination of your mortgage could free up cash flow for other costs. However, just because you pay off your mortgage doesn’t mean you won’t have housing expenses.
Be sure to budget for utilities, taxes, insurance, homeowners association costs and any other housing-related bills. Also, plan to keep money aside for maintenance and repairs. As you get older, you may find that you can’t do things like clean or maintain the yard. It may be wise to budget money to hire help for those tasks.
You also may want to consider downsizing. By selling your home and moving to a smaller property, you can reduce your housing-related expenses. You also may be able to pocket some cash to fund your retirement.
Many retirees assume that Medicare covers their health care costs. That assumption is usually incorrect. Medicare is a helpful program that covers many costs, but it doesn’t cover everything. Even for those treatments that are covered, Medicare often pays only a portion of the bill.
That means you’ll likely face substantial out-of-pocket costs for premiums, deductibles, copays and more. Consider funding a health savings account or purchasing a supplemental insurance policy to cover your costs.
Taxes don’t end just because you stop working. In retirement, you could face taxes on a wide range of income sources, including Social Security, pension benefits, retirement account withdrawals and much more. If you don’t include taxes in your budget, you may face a nasty surprise in retirement.
Fortunately, you can take steps to minimize the impact of taxes on your retirement budget. A financial professional can help you analyze your potential tax exposure and implement steps to manage the burden.
Life can change quickly. Health scares, job loss, housing damage and much more can have a severe impact on your financial stability. These risks don’t go away after you retire. You may want to maintain an emergency reserve or additional insurance protection so you don’t have to drain your retirement assets in the event of an emergency.
One possible emergency to consider is the need for long-term care. The U.S. Department of Health and Human Services estimates that today’s 65-year-olds have a 70 percent chance of needing long-term care at some point. Long-term care can be costly and may be needed for years. Discuss a funding strategy with your financial professional so this emergency expense doesn’t drain your savings.
Ready to develop your retirement budget? Let’s talk about it. Contact us today at Grand Canyon Planning Associates. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.