Expecting Your Money To Dwindle in Retirement? 3 Key Reasons It May
Written by
Heather Altamirano
Edited by
Chris Cluff
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Budgeting for retirement and anticipating expenses later in life will alleviate financial stress in your golden years, but preparing for the unexpected must also be considered.
Nobody can predict the future. While some monthly bills — an office wardrobe, higher fuel bills (since you won’t be commuting to work) and other business expenses — will be eliminated, other costs can sneak up on you.
Here’s where your expenses in retirement could increase.
Housing
Whether you rent or own a home, there are always costly expenses to keep in mind for retirement. As the need for affordable housing increases, people on a fixed income can struggle with rent hikes.
“In 2021, nearly 11.2 million older adults were cost-burdened, meaning they spent more than 30 percent of household income on housing costs, an all-time high and a significant increase from the 9.7 million recorded in 2016,” a report from Harvard University’s Joint Center for Housing Studies indicated.
Owning a home, even without a mortgage, also has financial challenges. Skyrocketing property taxes and home insurance costs are often forgotten about during retirement planning. Remodeling and renovations can also tie up extra allowances, and paying off a second mortgage in retirement can eat up funds, so budget accordingly.
Inflation
Inflation is often overlooked when planning for retirement, but seniors take a big hit in their pocketbooks when the price of household goods, groceries and necessities goes up.
“Over time, rising prices can significantly reduce your spending power when you’re living on a fixed income,” per Merrill. “For instance, if the current 3.7% inflation rate persisted for five years, it would whittle the buying power of a $1 million cash account down to $828,193. But even a hike as small as 2% or 2.5% in inflation can have a sizable impact.”
Healthcare
Medicare covers about two-thirds of retirees’ medical costs, and those retired can be left with high out-of-pocket expenses such as premiums, copays and deductibles that aren’t always factored into retirement budgets.
Additionally, costs can rise when long-term care or assisted living is needed.
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