Don’t Make the Retirement Crisis Worse By Forgetting These 10 Expenses
The retirement crisis is coming. Are you financially prepared? If you said “yes,” are you sure? You might be surprised to learn you’re not as prepared as you think you are. There are quite a few expenses you still have to take into consideration after you leave your job and ride off into the sunset.
Although you might know how much money you need to retire comfortably, there are some expenses you might not have thought about. Some aspects of retirement planning can be scary, so your first instinct might be to forget about it or leave things to chance. However, when it comes to life after work, letting the chips fall where they may isn’t the best strategy.
Make sure you don’t let anything on your retirement checklist fall through the cracks. Here are 10 forgotten retirement expenses you should not ignore anymore.
1. Helping adult children
Depending on when you call it quits, your nest might not be empty during retirement. Pew Research reported that in 2014, adults between the ages of 18 and 34 were more likely to be living with their parents than with a spouse or partner or on their own. Prepare now for the possibility you’ll still have another mouth to feed and added household costs, such as electricity and water.
Furthermore, roughly 39% of parents surveyed in another Pew poll said they helped their adult children with errands, housework, and home repairs. And 58% said they provided financial help to their adult children. If you have adult children who are experiencing financial difficulty, they might come to you for assistance. If you’re able to help, you might want to temporarily add this as an item in your budget, so you’re prepared. However, make sure you’re aware that becoming too involved in your adult child’s finances could set you back in retirement. Make it clear from the outset that you’re happy to offer temporary help, but you won’t be a source of ongoing financial support.
Will you still have a large mortgage to pay off once you leave the workforce? According to the Urban Institute, the share of owner-occupied households age 65 and older with housing debt increased from 23.9% in 1998 to 35% in 2012. Further, their median amount of debt nearly doubled from $44,000 to $82,000.
Housing costs will take up a significant portion of your monthly income. If you’re still carrying a mortgage (or if you’ll be renting an apartment), you’ll want to add this to your monthly expenses. One of the best ways to navigate this situation is to work toward paying off your mortgage before you retire, so you can free up some of your income. Even paying just $100 extra toward principal each month can shave years off your home loan and thousands of dollars in interest payments.
Do you remember how much a hamburger, fries, and a soda cost when you were a kid? How much does it cost now? It’s much more expensive because of inflation. The products and services you buy today will be a lot more expensive when it’s time for you to retire. Take this into account when planning your retirement. It’s especially important for you to plan accordingly because you’ll be on a fixed income.
Due to medical expenses, older Americans typically experience more inflation than the general inflation rate, which usually hangs around 3%. Fidelity estimates a 65-year-old couple who retired in 2016 will need $260,000 to cover health costs in retirement, up 6% from the prior year.
4. Emergency savings
Have your emergency savings plans taken a backseat? It’s time to start padding your savings account again. Know you’ll still need an emergency cash cushion during retirement. Just because the kids are out of the house and you’re not working anymore doesn’t mean you don’t have to worry about emergencies. You’ll have financial emergencies until the day you die, so stay prepared.
5. Income tax on retirement withdrawals
Depending on which savings vehicle you used to stash away your retirement cash, you might have an additional bill to take care of. If you have a retirement account, such as a 401(k) or a traditional IRA, remember you made tax-free contributions. You were able to enjoy the benefits of making tax-free contributions and lowering your taxable income during your working years. But don’t forget you’ll have to pay the tax man once it’s time to make withdrawals.
6. Personal grooming
You won’t be working in an office any longer, but that doesn’t mean you don’t want to look good. You’ll likely still want to spend money on grooming every now and then. Include the cost for grooming activities, such as hair salon (or barber) visits and nail maintenance. You can also do your own hair and nails at home if you’d like to completely cut these costs from your retirement budget.
7. Pet care
Don’t forget the costs involved to maintain the health and appearance of your furry friend. You can’t let your fur baby walk around looking unkempt. Dog grooming, for example, costs an average of $30 to $90 for standard grooming, according to the experts at Angie’s List. Cat grooming, on the other hand, costs anywhere from $35 to $100, according to the folks at Thumbtack.
8. Membership and subscription fees
There are so many ways you can waste money without even realizing it. One of the less obvious ways to do this is to let monthly fees slip your mind. It’s easy to let monthly membership fees fall through the cracks, especially if you rarely use your subscriptions. Take time to go through your credit card and bank statements to see which memberships and subscriptions you have and how much you’re paying for each of them. Discontinue the ones you no longer use on a regular basis. From there, you can add the cost of recurring memberships and subscriptions you do use to your retirement budget.
9. Health care
Depending on your daily habits, you won’t be in tip-top shape forever. Health sometimes declines as you get older. Be prepared for potentially higher health care costs during your post-work years. Health care costs continue to rise year after year, so you’ll need to have enough of a cash cushion to be financially prepared. U.S. consumers spent an average of $4,342 on health care costs in 2015, according to the Bureau of Labor Statistics. This was a 1.2% increase from the previous year. And AARP found brand name drug prices increased nearly 130 times faster than the general inflation rate in 2015.
Hopefully, you won’t be staying home all day, so you’re going to need some transportation. Getting around, whether by public transportation or car, costs money. Remember to add the costs of gas and car maintenance if you drive, as well as bus and train fare if you opt for public transportation instead. U.S. consumers spent an average of $9,503 on transportation in 2015, according to the Bureau of Labor Statistics. This was a 4.7% increase from the year before.