Raise your hand if you're excited to retire. We’re guessing a whole lot of hands just went up!
Retirement is a well-deserved right of passage that many people look forward to, but we’re sure you have heard countless times that you need to save, save, save if you want to maintain your current lifestyle once you stop working. Equally important to saving is planning for the known and the unknown expenses you will encounter. It's easy to budget for the basics; food, groceries, utilities, etc. But there are some expenses that will pop up along the way that you may not be prepared to cover and will definitely want to include in your long-term financial planning.
Here are 7 unexpected expenses you should plan for in retirement:
- Health Insurance. Many people assume that when they retire Medicare will cover all their health insurance needs so they don’t plan for the cost of health insurance. However, if you happen to retire early, you will need to invest in your own health care coverage until you're eligible for Medicare. And even when you reach the legal age to receive Medicare, it's not entirely free. Premiums and deductibles will still need to be paid by you, and these costs tend to increase each year.
- Home Renovations. Even if you've diligently maintained your home, there still could be significant adjustments that may need to be made to ensure your home remains livable during your "aging in place" years. For example, you may need to move sleeping quarters to the first floor, replace stairs with ramps, or even install hardware and fixtures that are designed to aid persons with disabilities. These types of improvements can be costly and could impact your retirement savings so you may need to explore lending options like refinancing a mortgage or securing a home equity loan.
- Federal & State Income Taxes. Once retired, you may not be receiving an income from a job, but it is possible that you continue to be taxed by the federal and state governments. Federal tax withdrawals from traditional retirement plans are often taxable and even social security benefits can be taxed given the right circumstance. When it comes to state taxes, every state is different, but just like federal income taxes, state income taxes don't automatically cease when you stop earning an income.
- Transportation. If you and your significant other retire around the same time, determine whether it is necessary to keep two vehicles. Even if both vehicles are paid off, the cost of owning a vehicle is still fairly sizable-- consider that you will need to insure, register, and pay for maintenance. Eliminating one vehicle may take some time to adjust to, but the amount you could save from curbing transportation costs could make a sweet difference when you're crunching numbers to pay for other unexpected costs.
- Travel. You've spent your working years fantasizing about when you could retire and travel the world. If that is part of your plan, then it's important to prepare for how much those worldly adventures will cost. Be sure to begin setting aside money well before you deposit your last paycheck so you can comfortably afford those bucket list trips.
- Entertainment. In retirement you will have more free time to discover all the leisure activities happening in your hometown. Whether it's dining out more often at a favorite restaurant, attending sporting events at your alma mater, visiting museums or signing up for a yoga class, there will plenty of ways to spend money on entertainment and social activities. Save money by taking advantage of your senior discounts and look out for other ways to save such as season passes to local theaters, sports games, etc.
- Inflation. Ahh, yes this is an inevitable cost. Although inflation can be considered when planning for retirement, it really isn't something you can write into a budget like everything else. You will need to be aware of it when planning out your expenses, but there are no tricks to getting past this one.
Are my current retirement savings sufficient? Check out this handy calculator to see if you are on target!
At the end of the day, your retirement years are something you worked really hard for and you deserve to enjoy it as much as you can. And with the right retirement plan, you can. Reach out to a Lakeland Bank Advisor to learn about the investment options available to you.
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TIP: You may find these two other blogs to be a valuable resource in your retirement planning: The SECURE Act and Your Retirement Savings or What You Need to Know About Life Insurance.
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