12 Costs to Factor Into Your Retirement Budget

Getting older is expensive, so properly preparing and budgeting for your golden years is crucial for enjoying (and financially surviving) retirement. Retirees need to factor in several significant costs when creating their retirement portfolios.

How to Factor Retirement Costs?

Did you know that nearly half of Americans do not have dedicated retirement accounts such as a 401(k) or IRA? Considering the cost of getting old in America, those statistics are frightening. So, how do you do better?

First, immediately establish and invest in a Roth IRA if you don’t have an employee benefit or pension plan. You can’t afford to work a day longer without contributing a percentage of your earnings to your retirement. These are the retirement costs to factor into living comfortably during life’s golden years.

1. Housing

Housing is an evolving expense that comes with rent and property tax increases, depending on your living situation.

Homeownership is the most cost-effective plan for retirement because you build equity and eliminate monthly housing payments. However, it’s necessary to factor in and save for taxes, utilities, and homeowner’s insurance costs.

2. Home Repairs and Modifications

Another considerable expense to prepare for is home repairs not covered by your homeowner’s insurance and modifications that may come with older age.

For example, mobility needs may change so much that you need to install ramps, special tubs, or showers, or even remodel part of the ground floor to accommodate no longer needing to go up and down the stairs.

As someone who lives in a tri-level townhome, I can’t imagine hitting these stairs in retirement. You don’t know what mobility limitations may come later.

3. Daily Expenses

Depending on your lifestyle, income, and health care costs, Fidelity reports that you can expect to spend between 55% and 80% of your current income annually throughout retirement.

Additionally, 15% of your living expenses will be related to health care expenses. Assess your daily life expenses honestly, determine what lifestyle you strive to afford, and create the wealth needed for it through assets and tangible investment opportunities like real estate.

4. Taxes

From property tax increases to paying taxes on early withdrawals from 401(k) plans and traditional IRAs, it’s crucial to factor taxes into your retirement savings plan.

Also, part of your Social Security benefit may be taxable, pending your retirement income level.

5. Healthcare

A common misconception among retirees is that Medicare will pay for much more than they do.

Forbes’s latest report suggests that the average American couple will need roughly $413,000 to cover healthcare expenses post-retirement. However, those figures don’t factor in long-term care.

6. Long-Term Healthcare

Long-term medical conditions and specialized treatment facilities cost a fortune. The sad fact of the matter is that things like Alzheimer’s, dementia, and cancer show up unexpectedly and can drain retirement savings in an instant.

Someone turning 65 today has an almost 70% chance of needing long-term care services and support in their remaining years.

Genworth’s Cost of Care Survey announces these monthly medians:

• In-Home Care Home Make Services – $5,720.
• Home Health Aide – $6,292.
• Adult Day Health Care – $2,058.
• Assisted Living Facility – $5,350.
• Semi-Private Nursing Home Room – $8,669.
• Private Nursing Home Room – $9,733.

You can see where that begins to add up quickly. These figures don’t account for specialized treatment facilities like memory care, which ranges between $3,500 to over $10,000 per month, depending on where you live in the States.

7. Spousal Death

The unfortunate truth for retired couples is that one of them will inevitably deal with the loss of the other, which, while heartbreaking, can also lead to financial difficulties if not prepared.

Financially preparing for spousal death can look like having life insurance policies, investigating survivorship options on pensions, and collecting your spouse’s Social Security benefit upon death.

8. Debt

Ideally, you’ll enter retirement with zero to minimal debt. However, in 2022, nearly 65% of Americans ages 65 to 74 held debt, and close to half of American seniors ages 75 and older also held debt.

Retirees face debts such as mortgages, installment loans, car loans, and credit cards. Knowing this, make it a financial goal to reduce and eliminate as much debt as possible before retirement.

9. Inflation

One of the scariest aspects of rising inflation is that your retirement savings won’t take you as far. Many retirees are already feeling the pain of that predicament.

Unfortunately, in addition to inflation, many seniors today are suffering, along with other Americans, battling price-gouging on goods and services.

10. Transportation

Another expense to factor into your retirement plan is transportation. Between getting around to doctor’s appointments, running life’s errands, and traveling, there’s no way around it.

Transportation expenses may include vehicle payments, insurance, gas, auto maintenance, and repairs.

11. Hobbies and Entertainment

Remember to add entertainment and hobbies to your retirement savings. The last thing you want is to be stuck in your home with limited options to have fun.

Plan for experiences like dining out with friends, seeing a Broadway show, theater, and couple’s ballroom dance classes. What does fun look like to you?

12. Travel

Do you plan to travel during your retirement years? Be sure to include that expense in your budget. Seniors enjoy discounts on travel accommodations, including airline tickets, hotels, and cruises. If you own an RV, factor in those expenses, too.

Final Thoughts

Planning for retirement involves many factors. While some are guaranteed significant expenses, like housing and taxes, others are defined by how much you want from them, such as traveling and transportation.

For example, some seniors have no desire to travel and opt for bus passes instead of financing autos. If you don’t have an employee benefit or pension plan, invest in a Roth IRA to start saving for your retirement today.