8 Reasons Your Retirement Budget Always Fails
Written by
Sean Bryant
Edited by
Molly Sullivan
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If you’re already retired, you might have noticed your budget looks different than during your working years. While you no longer have some expenses, you’ve likely picked up new ones. Unfortunately, this adjustment can be difficult for some people. If you find that you’re going over your budget each month, it may be time to look at the reasons why.
Eating Out Too Frequently
Eating out can be a budget buster for many people, even those who are not retired. However, once you hit retirement, you have more time on your hands. Eating out with friends is a great way to keep your social life active, but it can get expensive.
Take a close look at how much you’re spending to eat out each month, and if it’s more than you have budgeted for, start to cut back a little. Instead, cook at home more often and invite your friends to keep the social aspect alive. You can even have them bring a dish and turn it into a potluck.
Spoiling Your Grandchildren
As a grandparent, it can be tempting to spoil your grandchildren. But if you struggle to adhere to your budget every month, it may be time to dial back the spending. You can still get things for your grandchildren but try to get them secondhand to save money. You could buy toys or clothes from thrift shops or on Facebook Marketplace.
“It can be tempting in retirement to get in the mindset of, ‘I’ve worked a long time. I’m entitled to XYZ,'” said Tanya Peterson, vice president at Achieve. “It can also be tempting to want to give gifts to children and grandchildren. A good budget will account for an appropriate level of gifts and unplanned purchases, but again, should be tied to the things most important to you. Retirees are also wise to remember how important the gift of time is, too — versus material goods — particularly for children and grandchildren.”
Unexpected Expenses
Unexpected expenses will happen, so the smart thing to do is plan for them in your budget as much as possible. We’re talking about things like an emergency vet visit, car repairs, a broken household appliance or a flooded basement. These expenses can be costly and can easily throw off your budget. If you don’t already have a sizeable emergency fund, make sure you allocate a small amount of money each month for these unexpected expenses.
Medical Bills
Medical bills can be a large part of someone’s budget during retirement. Your medical needs become more frequent and more expensive as you age. Medical bills can quickly ruin your monthly budget if you do not properly account for them.
If you’re constantly hit with high medical bills, you may also be underinsured. If you only have Medicare but have high medical costs, you may want to get a supplemental Medigap policy to help cover deductibles, copayments and other medical expenses that are not covered by Medicare.
“Failing to account for healthcare costs can be a significant oversight in retirement planning,” said Matt Atwood, CFP at TimeWise Financial. “Medical expenses tend to increase with age, and without proper planning, these costs can quickly erode a retirement budget. For Example, a long term care facility can run as high as $10k/month, which is usually much higher than retirees’ budget to live on later in life.”
Atwood also said it’s critical to factor in healthcare costs when planning for retirement. Consider long-term care insurance to help cover potential nursing home or home healthcare expenses if possible.
Underestimating Inflation
Many people don’t consider the impacts of inflation when planning their retirements. Each year that passes, everyday items are going to get more expensive. If you’re not planning for that increase, your money might not go nearly as far as you’d hoped.
“Factor in inflation when planning your retirement budget,” Atwood said. “Consider using an inflation-adjusted withdrawal strategy for your retirement accounts. Diversify your investments to include assets that historically outpace inflation, such as stocks. Regularly review and adjust your budget to ensure it keeps pace with the rising cost of living.”
Taxes
It can be easy to forget to budget for taxes since you usually only think about them once a year. Many retirees don’t realize that Social Security benefits are taxable on the federal level and even in some states. If a large part of your retirement income comes from your Social Security, this can quickly put you at a disadvantage.
You Don’t Have Other Sources of Income Besides Social Security
Social Security alone may not be enough to support your needs during retirement. Having multiple sources of income in retirement can help. This could include a pension, a 401(k) or IRA, and other taxable investments. Many retirees also take on part-time jobs as a way to stay active. This can also be a good way to help cover any potential budget deficit.
You Retired Too Early
The age you retire and start collecting Social Security benefits greatly impacts your monthly benefit amount. If you wait until the full retirement age (67 if you were born after 1960), you’ll receive 100% of your benefits. If you start collecting earlier, you’ll receive less. If you wait until 70, you’ll receive more.
The problem is, for most people, Social Security isn’t going to be enough to rely on in retirement. You need to have extra savings to be able to maintain your current lifestyle. If you retire too early, without having enough saved, it’s going to put a strain on your budget.
The Bottom Line
If you’re having trouble sticking to your budget during retirement, it may be time to look at the potential causes. There may be costs that you could reduce or eliminate.
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