When it comes to retirement planning, one of the first places I start is helping clients determine how much they will be spending. If they haven’t done so for themselves already, we help them put together a spending plan (a.k.a. a budget); most have a good handle on the day-to-day living expenses. However, it’s important to keep in mind that the expenses you face today may not be the ones you’ll have in the future. In fact, many Americans fall short in their planning because they fail to consider certain common, yet frequently overlooked retirement expenses beyond the day-to-day. Here’s are a few you should keep in mind.
Travel. It makes perfect sense that many retirees say that travel is one of their top priorities. During your working years, your ability to travel is limited to your vacation time. Come retirement, you finally have the freedom to take off and go, visiting places that have been on your wish-list for years. You also have time to spend with family and friends, including any grandkids you may have. This means you may be on the road more, for longer periods of time. Those travel costs can add up and quickly consume a larger part of your budget than you may have anticipated.
Medical expenses. Most people factor in the cost of Medicare coverage when planning for retirement. But what about the expenses Medicare doesn’t cover, such as dental, vision and hearing care, prescription drugs and most long-term care costs? Even when they have supplemental insurance, many of the people I know are surprised by how much they need to pay out-of-pocket beyond their insurance premiums and co-pays.
Major home repairs and improvement. If you’ve lived in your home long enough, it probably has a list of possible components—the roof, the heating or cooling systems, the appliances, etc.—that could fail at any time. You may also find that you’ll have to pay someone to take on many of the home maintenance chores you used to tackle, such as house cleaning, lawn care and snow removal. And don’t forget the possibility that you may need to eventually add improvements that will keep the house updated for future sale and/or enable you to safely remain in your house as you age.
Assistance for elderly parents. We’re all living longer, and that means you may have elderly parents who need both physical and financial assistance from you, especially if they have concerns about their own savings. Some of these expenses include spending on medication, medical supplies and in-home care. If your parents move in with you, you may also have the added cost of renovations such as installing ramps, railings and lifts.
Adult children and grandchildren may need help. When planning for retirement, you may not think to make allowances for your adult children. Yet weddings, new homes, grandchildren—these happy events will require gifts, travel and other expenses. More significant, it’s not uncommon for an adult child to face a life crisis, such as loss of a job, divorce or a health issue. You may need (or simply want) to help out your children financially or allow them to live at home until they can get back on their feet.
Your spouse becomes ill or dies. When many couples budget for retirement, they plan with the assumption that they will both be living in the same place. But what happens if one of you requires medical care in an assisted care or nursing home facility? Suddenly, you may find yourself paying for all or part of that care and a host of related expenses on top of what it costs to maintain your lifestyle.
Similarly, what if you or your spouse passes away? Although many of your household expenses will remain the same, your family income will not. For one, you will lose the deceased spouse’s monthly Social Security benefit. And if the deceased spouse had a pension or annuity, you may also see all or a portion of that income cease as well.
Hope for the Best, Plan for the Worst
The point to remember is that you will have a different budget as you age, so you need to plan for it. Think about how your life will change in retirement. What expenses will you still have? Which ones will be higher? What new expenses are you likely to face? Take time to figure out as much of this as you can, and make sure you build a cushion into your retirement plan to accommodate these and other unforeseen expenses that may come your way.