Retirement is a time to relax and enjoy the fruits of many years of labor. But while you plan for retirement , don’t forget to account for easily overlooked costs that can put big cracks in your nest egg.
Here are some signs you might be underestimating your retirement budget. Make sure to budget for these expenses before you stop working.
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1. You forget about inflation
Inflation is a major challenge for seniors living on fixed incomes. Rising prices reduce your buying power and can put you at risk of running out of money during retirement.
If you plan ahead and start investing early enough, you can build up additional savings that can somewhat mitigate the risk inflation poses.
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2. You underestimate health care costs
For most people, Medicare coverage kicks in at age 65. However, it’s naive to assume that this government program will cover all your health care costs.
There are many services Medicare might not cover. For example, traditional Medicare doesn’t offer vision, hearing, or dental coverage.
In addition, you will still need to cover the cost of premiums and deductibles.
3. You forget about long-term care costs
About seven out of 10 Americans will need long-term care at some point, according to the U.S. Department of Health and Human Services.
Medicare doesn't cover long-term care services. You'll need to figure out how you plan to pay for such care should it become necessary.
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4. Your lifestyle dreams don’t match your income
Many people envision a retirement full of travel and leisure. That's fine if you can afford it.
However, millions of retirees soon find that sipping margaritas by the beach several times a year isn't a realistic goal, given their income and savings. If you insist on this type of retirement, you better find ways to save more on travel .
5. You overlook income taxes
When you retire, there's a good chance that you'll still bring in enough income to pay taxes on it. This is especially true if you saved money in tax-deferred retirement accounts.
Don't forget that Uncle Sam always wants his piece of the financial pie, even after you retire.
6. You don’t budget for property taxes
Even if your mortgage is paid off, you'll still need to pay property taxes every year. Setting aside funds regularly will prevent tax bills from taking you by surprise.
Make Money: 8 things to do if you're barely scraping by financially 7. You don’t plan for home maintenance
As you age, so does your home. If you plan on staying in your home throughout your retirement, you'll need to account for the cost of regular maintenance and occasional repairs.
8. You intend to buy expensive vehicles
Perhaps you want to upgrade your car during retirement. Or maybe you'll need something roomier, like a van, due to age and mobility issues.
Vehicles are expensive, and that cost is easy to underestimate when you plan your retirement. Finding ways to save on things like car insurance can help you keep more money in your wallet.
9. You expect utility bills to remain low
Our bodies might become more sensitive to heat and cold as we age. That can mean higher utility bills.
In addition, expect utility costs to rise over the years as inflation takes its bite. The bill you pay at the beginning of your retirement might seem high, but it will likely worsen over the years.
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Retirement is the time to reap the benefits of years of hard work. So, by all means, enjoy your golden years.
But don’t spend recklessly. If your funds are limited, enjoy affordable entertainment options close to home rather than jet-setting around the world.
11. You forget that pets grow older too
Your beloved companions will require more care as they age, just as you likely will.
Plan financially to take care of your furry friends in their golden years, too. Make sure you can afford pets before inviting them into your home.
12. You expect Medicare premiums to remain the same
Don’t expect Medicare premium costs to remain stable as your retirement rolls along.
Instead, you should anticipate costs to increase over time. It is important to budget with this reality in mind.
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Between the ages of 25 and 80, adults can lose up to 50% of their muscle strength, according to the Columbine Health Systems Center for Healthy Aging at Colorado State University.
As your abilities decline, you may need to make some modifications to your home, such as adding ramps, shower bars, or chairlifts. All of these changes cost money.
14. You overlook the need to pay legal fees
Estate planning ensures that your assets are distributed in the manner you intend after your death.
Leave room in your budget for the fees you will pay to a lawyer to ensure your estate plan takes care of your loved ones and helps them avoid the headache of probate court.
15. You put too much faith in Social Security
Social Security can be a lifesaver for many retirees. But the hard truth is that most people find their benefits only replace about 40% of their annual working income, according to the Social Security Administration.
Unless you plan on cutting back your lifestyle, you might need to find ways to supplement your Social Security during retirement.
Bottom line
Retirement should be a time to relax and enjoy yourself after years of hard work. Knowing how much you will likely spend during retirement — and leaving room in your budget for unpleasant financial surprises — is crucial to a successful retirement.
So, carefully examine the items on this list and make sure your retirement plan has budgeted for them properly.
Money tips that can work for everyone
No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.
Focus on paying off your debt. Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.
Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.
Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).
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