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Financial horror stories of retirees running out of money during their golden years are unfortunately all too common. Many people underestimate how much their retirement lifestyle will cost, putting them in a difficult position at the end of life.
However, some retirees do the opposite, overestimating how much they will need to cover their expenses. We asked several certified financial planners (CFP®) about the types of expenses that retirees often overestimate. Keep reading to know what he had to say.
expenses
Interestingly, according to financial professionals, health care, travel and home and auto maintenance top the list of expenses faced by retirees. here are the details.
Health care
“People are overwhelmed by the unknowns of health care in retirement. Studies by Fidelity have shown that the average health care cost in retirement is over $250,000. That’s a huge number, but it’s also over a lifetime, which can be 15, 20 years or more,” said Kyle Newell, owner. Newell Wealth Management.
“(Retirees) hear those numbers and think that if they go to the hospital, they’re going to have to pay thousands of dollars. In fact, Medicare or Medicare Advantage covers a lot,” Newell added.
Travel
Michelle Petroski, Owner to be in abundancesaid, “Most people envision their dream retirement – finally getting time to see the world, take the trips they’ve been putting off and visit grandchildren more often. They assume they’ll travel more and keep that pace up over the years, sometimes with inflation in those numbers, which just adds to the exaggeration.”
“But what really happens is that lives change,” Petrovsky continued. “People often don’t realize that there is a natural spending pattern in retirement – ’go-go’ years first, then ‘slow-go’ years later, and eventually what is known as the ‘no-go’ years. Travel and discretionary spending typically decreases over time, but many plans don’t reflect this because we are so excited about retirement and the adventures we have in our next chapter.”
home and car maintenance
“When people retire, they often plan on the same or increased home and auto maintenance expenses such as oil changes, furnace repairs, etc. In fact, these costs often decrease in retirement,” said Benjamin Simerly, founder of . Lakehouse Family Wealth.
“As individuals and couples age, they often drive fewer miles, use less air conditioning and change other habits that significantly reduce maintenance costs. Often, couples also decide to skip maintenance when needed and let the next owner deal with it. Retirement becomes more about convenience and time, a focus on life, and less about a ‘to do’ list,” Simerly explained.
main idea
As you prepare for and move toward retirement, follow these best practices to create and stick to a realistic budget for all of your expenses.
Research the true costs
Dig deeper than financial headlines designed to inspire emotions (mainly fear) to find out how much you really need to save. For example, “Fidelity estimates that the national (health care cost) average is about $6,500 per person per year, including premiums and out-of-pocket expenses. So one can use this as a base case for planning to save enough to cover each year,” Newell said.
Newell added, “It is important for retirees to understand what their out-of-pocket maximum may be. Ultimately, however, these numbers are possible and many people overestimate them as they think about possible worst-case scenarios.”
Pro Tip: Don’t confuse health care costs with long-term care costs. Although insurance can help cover some long-term care expenses, you could be on the hook for a significant amount of money – especially if you don’t have a long-term care insurance policy.
Find ways to save
Knowing how to make each retirement dollar stretch means you’ll need less of them to live comfortably and happily. For example, you can travel a lot more if you skip the fancy tourist traps.
“Often, savvy travelers find ways to live like locals wherever they go and save significant amounts of money in the process. Focusing on the destination is not only more gratifying, but often less expensive,” Simerly said.
He also encourages retirees to join seniors’ groups to make friends and take advantage of discounts on activities.
“Life can become more fun and less expensive,” Simerly said.
Review your budget regularly
The budget you create for a 65-year-old probably won’t apply to an 85-year-old.
“The traditional financial planning model assumes a very uniform rate of spending during retirement adjusted for inflation. But life doesn’t actually work that way. So, people who went with this flat rate spending model often find that they overestimated their expenses a few years into retirement,” explained RJ Weiss, founder ways to get money.
“To help keep spending more in line with reality, I would advise people to break retirement into stages — early, middle and later years — and plan separately for each. I believe the goal is to have a plan that matches how life is actually unfolding, not just how you pictured it on day one,” Petrovsky said.
“Overestimating isn’t a bad thing – it can become a good support – but if it leads to being overly cautious, it can mean you miss out on other experiences you could have enjoyed and didn’t.”