Retirement Savings: This Is All You Need If You Do Not Plan To Travel
A recent GOBankingRates survey showed that 75% of people think they’ll need $1 million or less in retirement and 70% don’t expect to spend more than $2,500 monthly. If you don’t plan to travel during retirement and already own your home, you may have limited expenses during your golden years. However, retirement is not expense-free, and there are still many costs you need to include in your budget.
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Here’s a look at which costs to factor into your non-travel retirement.
Housing
Housing likely will be one of the biggest expenses for most people during retirement. If you don’t own your home, you’ll still pay rent monthly. And if you own your home but haven’t paid off the mortgage, you’ll be making monthly mortgage payments.
But just remember that even when you pay off your mortgage, there are still costs to homeownership, like taxes, insurance, maintenance and emergency repairs. Property taxes may increase over time if your home becomes more valuable. Plus, home repairs or maintenance work may become more difficult to do yourself as you age. That means you may need to hire someone to do the work.
If you need to spend less on housing during retirement, you could downsize to a smaller, less expensive home. In addition to lower monthly payments, you’ll also pay less for heating and cooling, taxes and maintenance.
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Healthcare
Healthcare costs during retirement can vary a lot based on your healthcare plan, your medical needs and other factors. It is hard to predict your future healthcare costs because it is impossible to know your future healthcare needs.
There are various premiums and deductibles for the different parts of Medicare. While some preventive and emergency care services are covered, other medical services, like eyeglasses and hearing aids, may not be.
“Healthcare is a major expense that rises as people age,” said Guillaume Drew, founder and CEO of Or & Zon. “Retirees need to consider potential medical emergencies, routine checkups, prescription medications and long-term care when planning their retirement savings. Medigap or long-term care insurance can be a wise addition to your basic Medicare coverage to insulate against unexpected healthcare costs.”
Taxes
When it comes time to withdraw money from your traditional 401(k) or IRA, you must pay income tax on each withdrawal. Part of your Social Security benefit could also be taxable if your retirement income is above a certain threshold.
Utilities
When you go from working in an office to being at home most of the time, your utility bills are going to rise. You’ll be keeping your house at a more comfortable temperature during the day and using more water.
“Though you might be lucky enough to have your house paid off, continuing expenses like electricity, gas and water do not disappear, and they often increase with more time spent at home,” Drew said. “Investing in energy-efficient appliances and home upgrades can reduce this recurrent expense.”
Transportation
If you own a car, you will have the typical expenses associated with car ownership, like insurance, repairs, maintenance, gas and more. Retirees who don’t own cars likely still will have transportation costs, whether it’s public transportation, taxis or rideshares. However, if you previously commuted to work, you may spend less on transportation than you did during your working years.
Food
You may be used to having a certain food budget, but that can change during retirement. Additional free time might tempt you to eat out more often for social reasons or entertainment. You can take advantage of the senior discounts that some restaurants offer, and cooking at home will almost always be a cheaper option.
Entertainment
Even if you don’t plan to travel during retirement, with all your extra free time you may still spend more on entertainment. Whether it is hobbies, shows, museums, movies, classes or other experiences, entertainment can get expensive. There are free and discount options that can help reduce the cost. Places like libraries, senior centers, community centers and nonprofits also offer free and affordable entertainment for people of all ages, including seniors.
Emergencies
Emergencies don’t stop just because you aren’t earning an income. Home repairs, car repairs and healthcare emergencies can happen. Having an emergency fund is essential to avoid depleting your retirement savings.
Long-Term Care
Long-term care can be incredibly expensive. If you don’t have family to take care of you, you will likely need to hire help or move to an assisted living or nursing home facility at some point. Long-term care can cost tens of thousands of dollars, and it is hard to predict how long you will need it.
How To Figure Out Your Monthly Retirement Budget
Determining what your monthly budget will be during retirement can be difficult. On average, you can expect to spend between 55% and 80% of your current income annually. However, the exact amount will vary by person. To figure out your monthly expenses during retirement, start by organizing your current expenses into three categories: fixed, variable and one-time. Then, deduct expenses you won’t have in retirement (like child care, work clothing, etc.). What is left should be made into a line-item budget.
To estimate your retirement income, calculate projected monthly withdrawals from Social Security, pensions, retirement accounts, real estate investments, savings or part-time income that you will have during retirement.
Compare your expected retirement expenses with your expected retirement income. If the expenses are larger than the income, you will need to either reduce expenses, increase income or both.
The Bottom Line
Budgeting for retirement can feel overwhelming, but knowing your possible expenses can help you prepare. Some costs can be reduced or eliminated in retirement, while other expenses may increase over time. And don’t forget that you must also factor in inflation when determining your expected retirement costs.
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This article originally appeared on GOBankingRates.com: Retirement Savings: This Is All You Need If You Do Not Plan To Travel
