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RETIREMENT PLANNING
Living Expenses in Retirement
written by Mike Ballew November 12, 2023
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Conventional wisdom says our living expenses will decrease in retirement, but is that really true? A recent study found that half of all Americans actually experience an increase in living expenses in retirement.

Influential Factors

By the time you retire, a travelling jones coupled with a bucket list of destinations may have you packing your bags. With no job and no young children to care for, it’s the opportunity of a lifetime for travel. There’s also the uncomfortable truth that you’re not getting any younger. You have to enjoy life while you still can.

When you’re not travelling, you will have lots of time to fill. Most people explore new interests they never had time for when they were working. Picking up a new hobby comes with startup costs. Suppose you decide to take up woodworking. You’ll need some power tools and a stockpile of wood and maybe an air conditioner for your garage. There will be upfront costs in most any endeavor you undertake, which is why it may be best to tackle those costs while you’re still working. 

Retirement can be a shock to the system. With no steady paycheck it’s not unusual for new retirees to clamp down on discretionary spending. Running out of money is the number one fear among retirees.

Medical Costs

Most people experience increased healthcare costs as they age. Medicare does not cover everything, there are co-pays and out-of-pocket expenses. Medicare supplemental insurance can help, but it’s not free. Even if you have stellar genes and have lived a perfect life, your medical costs will likely increase in retirement.

Saving for Retirement

One bright spot is the fact that once you retire you will no longer need to save for retirement. For most people this frees up a good amount of money.

Housing

Ideally you will have paid off your mortgage by the time you retire. You still have property taxes and insurance, but your overall payments will be significantly less when not combined with a mortgage payment.

Unfortunately, mortgage-free bliss is not in the cards for many retirees. A study by the Consumer Financial Protection Bureau found that one-third of retirees still make mortgage payments.

Transportation

While housing typically consumes the lion’s share of your household budget, transportation runs a close second. This is another expense that should decrease in retirement. With no daily commute, you should experience lower fuel costs and less wear and tear on your vehicles. You may want to consider Downsizing to One Car in Retirement.

Life Insurance

Life insurance is another area where you can economize in retirement. You are retired, so there’s no income to replace. Retirement is the right time to kick term life insurance to the curb. If you have whole life insurance, you might want to look at cashing in your policy.

Travel

Finally, we end where we began, with travel. As mentioned, travel costs will likely increase when you retire, then taper off. When you reach an age where travel feels more like torture than something you enjoy, the vacations will come to an end. A good model for planning purposes is to assume elevated travel expenses for the first ten years of retirement.

Conclusion

Your living expenses are going to change when you retire, and they are going to keep on changing. That is why it is so important to plan and save for retirement. The best way to prepare for retirement is to hire a financial advisor or avail yourself to sophisticated planning software that can model your finances over time. Financial modeling programs perform year-by-year analysis to deliver results that are tailored to your unique situation. To learn more, check out this article entitled Best Retirement Planning Software. Don’t rely on free online calculators or leave it to chance, your retirement is too important.

Photo credit: Pixabay Eggstack News will never post an article influenced by an outside company or advertiser. Our mission is to help you overcome uncertainty about retirement planning and inspire confidence in your financial future.
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MIKE BALLEW
Eggstack founder, Financial Planning Association member, engineer, and software developer.