When you retire, what will be your major expenses? If you love to travel, then that might take up a good portion of your budget. Food, groceries and utilities will probably take their fair share of your money as well.
But what are you missing?
Here are seven retirement costs that people often forget to figure into their financial calculations.
1. HEALTH INSURANCE
You’ll have Medicare in retirement, so no problem here, right? Not exactly.
First, if you retire early, you’ll need to buy your own health care coverage for a few years. Unless you qualify because of a disability, Medicare isn’t available until you’re 65.
Next, Medicare doesn’t mean totally free health care. Most people don’t pay a premium for Medicare Part A — that’s your hospitalization coverage — but there is a $1,340 deductible as well as some possible co-insurance costs. Medicare Part B, which covers outpatient care, has a standard $134/month premium and a $183 deductible, after which you pay a share of doctor, outpatient therapy and medical equipment costs. There are additional premiums and costs for Medicare Part D. That’s for your prescription drug coverage.
Finally, since there are some gaps in what original Medicare will cover, you may opt to go with a Medicare Advantage plan, also known as Medicare Part C. These plans bundle all your original Medicare services with additional coverage for things such as dental or chiropractic care. Those additional services usually come at an additional cost. You could also buy a Medicare supplemental, or Medigap, policy to pay for some uncovered services.
2. MEDICAL AND LONG-TERM CARE COSTS
Even if you have Medicare, there are certain expenses you’ll have to pay out of pocket. Unless you have a Medicare Advantage or Medigap plan offering these benefits, expect to pay out of pocket for dental care, dentures, eye exams for glasses, foot care, hearing aids and any care received while you’re traveling out of the country.
However, long-term care is the largest expense not covered by Medicare. You’ll spend an average of $3,628 a month to live in an assisted living facility or $7,698 a month for a private nursing home room, according to 2016 government estimates. Unless you had the foresight to purchase a long-term care insurance policy — not cheap in and of itself — you’ll need to cover that cost of care yourself. Not even Medicare Advantage is going to pay for that.
3. HOME RENOVATIONS
Between long-term care costing so much and seniors’ active lifestyles, it’s not surprising that AARP found 90 percent of those age 65 and older want to stay in their homes throughout retirement. Known as aging in place, this practice brings its own set of costs.
Doorways may need to be widened, a bedroom brought to the main floor and the bathroom renovated to accommodate the limited mobility that often comes with advanced age. AARP also recommends installing nonslip flooring, an accessible entryway without steps and lever door handles.
4. SOCIAL SECURITY AND OTHER INCOME
If your budget is tight even after claiming Social Security, you may want to keep working or take a part-time job. However, if you’ve started claiming those retirement benefits early, your outside income could end up taking a bite out of your benefit checks. Until you reach your full retirement age (FRA), which is around 66 for most folks, the government limits how much extra money you can make without consequences.
For 2018, the threshold is $17,040 if you’re age 62-65 and already claiming Social Security; if you earn more than $17,040, the government will ding your benefits $1 for every $2 you make over the limit. If you will be turning 66 in 2018, you can earn up to $45,360 in the months before your birthday, and the government will impose a $1 penalty for every $3 you earn above that. Once you reach FRA, you can earn as much as you like and get 100 percent of your benefit check.
The Social Security Administration wants you to know that you don’t “lose” those withheld benefits. After reaching FRA, your monthly benefits will be increased permanently to account for the withheld benefits.
On another topic, if you’re receiving income from a traditional retirement plan such as an IRA, you also may face a tax bite. After age 70½, the government starts requiring minimum distributions from those plans. That extra money could push you into a higher tax bracket. In a 2017 survey by investment firm Capital Group, 34 percent of retired boomers said they were paying more in taxes than they expected.
5. NEEDY ADULT CHILDREN
Beware the dreaded boomerang kids. Much has been written about adult children returning home to roost, but that shouldn’t be your only concern.
No, you have to worry about children who might ask you to co-sign loans and then bail on the payments, leaving you to hold the bill. Or they may need your money to pay their rent, student loans, phone bills or any of dozens of other possible expenses.
How likely are you to support your adult children financially? A 2017 poll from CreditCards.com found 74 percent of parents said they had helped their adult children with money for bills or other spending expenses.
This isn’t something you can pencil into your budget as a line item, but inflation can’t be ignored. It’s tempting to do so, though, since the U.S. has spent the past decade in a low-inflation environment and the next few years shouldn’t be much different.
Hopefully, however, you won’t only be retired for the next few years. You have to plan for what the next 10, 20 or 30 years will bring. Heaven forbid we return to the age of double-digit inflation rates, which were last seen in the early 1980s, but that’s always a possibility.
Rising inflation has the potential to erode your money’s purchasing power and push up the cost of everything you buy — from food to rent to travel.
7. A LONG LIFE
In 1950, the average lifespan in the U.S. was only 68.2 years, according to the Centers for Disease Control and Prevention. That’s significantly better than the 47-year average lifespan people had in 1900, but still not enough to give most people much time in retirement.
It’s a different story nowadays. Babies born in 2015 should live to an average age of 78.8 years. Meanwhile, a 75-year-old in 2015 could reasonably expect to make it another 12 years to 87, by the government’s estimates.
A long life means extended opportunities to enjoy friends, family and hobbies, but it also compounds all the expenses detailed above. Most notably, it gives inflation more time to eat away at the value of retirement savings and means more years covering health care expenses.
Bottom line, there is no way to eliminate most of these expenses in retirement, but there is no reason to get blindsided. Work these costs into your financial plan so you’ll be ready for whatever may come.