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Most people know about the importance of retirement planning. You’ve likely thought about it all your life and worked for decades trying to put money away to finance a quality retirement. While it’s impossible to estimate exactly how much money you’ll need in your golden years, there are a few guidelines that can help you plan ahead for certain expenses.
Retirement is difficult to plan for. It’s not like a vacation that lasts for a set period of time, or a house you buy at a specific price. Retirement costs will vary based on your lifestyle, health, and how long you live.
While you can’t predict every possible scenario, we do know a few things that can help us to plan ahead for a successful retirement, financially and otherwise.
First, let’s talk about the major expenses you can plan for in your retirement years. Then, with each of these categories, we’ll give you a few strategies for reducing your costs and making the most of your retirement nest egg.
Housing often comprises the majority of our budget during our working years.
Here are some popular ways to minimize your housing expenses during retirement:
1 — Pay off your home mortgage before retirement. Getting rid of large mortgage payments will ease your spending needs.
2 — Downsize. If you live in a much-larger home than you need, you could reduce your spending greatly by downsizing to a smaller home, condo, or other living situation. Ideally, your home will sell for more than you need to finance a new place.
Maybe you’ve raised a family in your home but no longer need so many bedrooms or a large yard. Selling that home should free up cash to pay for a smaller home or rental, not to mention the time and energy you can save by downsizing. You may not feel like — or be able to — mow a large lawn, maintain a garden, or repair items around the house that constantly break.
3 — Share housing costs. This could take one of several forms. You might merge households with a roommate or rent out a portion of your home to someone you know.
If your family circumstances are right, another option is for retirees to move in with their grown children (or vice versa). Living with family members can be complicated and require some flexibility and compromise, but it can be a wonderful way for both parties to save on housing expenses.
Plus, as you grow older, safety and health can become worrisome, so living with a younger family member can be advantageous in that way as well.
Food makes up another huge line-item in anyone’s budget. In retirement, there are plenty of easy ways to save on your food costs.
1 — Prepare and eat meals at home. Dining out comes at an enormous markup, and you can save plenty by eating the majority of your meals at home.
Learn to buy the right amount of groceries for your household, whether you live alone or with others. This will help reduce food waste, saving you money as well. If you’ve never been much of a cook, it’s never too late to start!
2 — Take advantage of senior discounts. Most dining establishments offer “senior specials” with freebies, discounts, or unlimited refills. Check your area for deals and find out when they are available. You may also be eligible for discounts through an organizational membership you carry.
Health insurance, homeowners, auto, life, disability, long-term care, there are many types of insurance you might be paying for in retirement. Many of these are necessities, but some can be adjusted to reflect the changes to your lifestyle as you age.
Health care represents a big piece of the spending “pie” in retirement. About 9% – 14% of spending in an older household goes towards health care, treatments, and medications. These costs can vary drastically, though, since health care costs depend on so many factors. You can do several things to lower your health care costs.
1 — If you are 65 or older you qualify for Medicare. Remember that Medicare is not free. Though most people get premium-free Part A, the majority of seniors will pay a monthly premium for Medicare Part B and Part D.
When you age into Medicare, the best place to start saving money is to know when you’re enrollment periods are. Missing an important enrollment date can cost you big time in the long-run.
Additionally, 4 out 5 seniors 65 and older choose to get a supplemental policy to go along with their Original Medicare. This is another monthly premium you should count on.
2 — Shop your Medicare rates. Don’t settle for the first plan you find or for the plan that your neighbor has. Use a Medicare broker like Boomer Benefits to look at your living situation and compare rates from multiple insurance companies in your area to find the lowest rate.
If you no longer have dependents that are counting on your income, consider dropping your term life insurance. Many people continue to pay large sums of money through retirement on life insurance when the reality is that their children may be just fine without it.
Have a conversation with the would-be beneficiaries of your policy and discuss the necessity of keeping the it.
The monthly premium could turn into extra cash in your pocket.
Additionally, disability insurance is usually not needed when you’re retired (its purpose is to replace lost wages in the event you become unable to work).
Do a full review of the insurance policies you have to determine what to keep and what to get rid of.
Taxes don’t magically disappear once you hit a certain age. Remember that when you withdraw retirement funds from a traditional IRA or 401(k), those taxes you’ve been deferring all these years now will be due.
There are some ways to reduce your tax burden when you withdraw 401(k) funds, such as tax-loss harvesting, paying attention to your tax bracket yearly, and minimizing capital gains taxes.
For Roth retirement accounts, you’ve already paid taxes, so you won’t have to worry about any further taxation when you make regular withdrawals.
It is best to consult with a tax professional and/or financial planner to make sure you have a tax strategy in place throughout retirement.
Many retirees enjoy having the flexibility and cash flow to be extra generous towards their loved ones. You may want to bestow special gifts on your grown children, grandchildren, or other relatives. And it’s likely that at least part of your yearly spending will go towards gift-giving for holidays, birthdays, and other occasions.
You may also be exploring philanthropy — the joy of giving to make others’ lives better. Perhaps you donate regularly to a charity or two, or you support your local religious organizaiton. Giving is a wonderful part of life, and you should continue to be generous as you are able.
1 — To save money, use a budget that includes a specific amount for giving. Do not be pressured into giving to dozens of different charities and fundraisers if it causes you to fall behind on bills. You need to care for yourself and your expenses.
The same goes for gifts to loved ones. No matter how much you love them, you are not responsible for paying their bills or bailing them out of financial trouble.
2 — Learn to be generous with your time and energy, not only your money. You can volunteer at your local hospital or homeless shelter or any number of organizations. Donate blood, if you’re healthy enough to do so. There are plenty of non-monetary ways to give.
As a retiree, your entertainment budget may decrease because you naturally enjoy more frugal activities. On the other hand, you may find that with so much free time, you spend more money to keep yourself busy and entertained.
1 — Save money with free or inexpensive activities. Gardening, hiking, and reading library books are just a few examples.
2 — Again, find the senior discounts. Cultural or historical centers, museums, and other attractions often provide admission at a discounted cost if you are above a certain age.
Your travel costs might jump after you retire because you enjoy traveling to visit friends and family and explore the world. So a great way to counteract some of those costs is to reduce what you can on transportation at home.
Depending upon what your commute was like in your working years, you may experience an immediate drop in expenses just from cutting out the commute.
Here are some other ways to keep your transportation expenses low in retirement.
1 — Comparison-shop for auto insurance. Get quotes from at least 2-3 insurers before you choose a plan. Also, see if you can lower your premiums and take a higher deductible.
2 — Get rid of a car. If you’re a two-car household, perhaps you could get by with one vehicle and simply rent for the occasions when you need a second one.
3 — Drive cars as long as possible rather than upgrading every few years. Keeping a vehicle longer greatly reduces your transportation costs over your lifetime.
4 — Drive inexpensive cars. Sure, that Porsche might look attractive on the showroom floor, but how long will that new-car sheen last? You just need a reliable vehicle to get you from Point A to Point B.
