Budgeting ahead of retirement will help reduce stress later in life. You’ll find that some expenses can be reduced or eliminated, while others may even increase as you age.
Here are 10 costs to include as you budget for retirement:
1. Housing.
2. Health care.
3. Daily living.
4. Entertainment.
5. Taxes.
6. Debt.
7. Travel and hobbies.
8. Home modifications.
9. Family support.
10. Inflation.
1. Housing
Whether you own your home or rent, lodging costs may be one of the largest parts of your budget. Those who have paid off their home may have extra cash to spend on other budget categories, but don’t forget to factor in upkeep, property taxes, insurance and utilities as ongoing expenses.
You might also consider how much space you need. “Many retirees choose to downsize their homes and living situations, and doing so can make your money stretch even further,” said Jordan Mangaliman, CEO of Goldline Financial Services in Fullerton, California, in an email. Relocating to a cheaper area can help you save on housing costs. Getting a place that is easier to maintain could make retirement more manageable, too.
[READ: How the Housing Crisis Impacts Your Retirement Savings]
2. Health Care
“Health care costs are significant, especially as retirees age, and it’s prudent to account for premiums, co-pays and potential long-term care expenses,” said Cameron Burskey, senior partner at Cornerstone Financial Services in Southfield, Michigan, in an email.
You’ll be eligible for Medicare at age 65, which can help cover some medical expenses. In addition, you could pay for Medicare Part B medical insurance, which helps cover doctors’ visits, tests and home health care. The standard monthly premium for Medicare Part B is $174.70 in 2024, with an annual deductible of $240. If you are considered a high-income beneficiary, you could pay more. For instance, individual beneficiaries with a modified adjusted gross income of more than $103,000 and up to $129,000, or couples with a modified adjusted gross income of more than $206,000 and up to $258,000 will pay $244.60 a month.
Medicare Part D, which helps cover the cost of prescription drugs, has a monthly premium based on income, too. Other health expenses to budget for include medications and potential long-term care.
3. Daily Living
Regular expenses such as groceries, household supplies, transportation and clothing will continue in retirement. However, some of these costs won’t be as high as they were in your working years, especially if you eat at home more often or no longer commute to work. “Retirees often spend less money on daily transportation when they stop working,” Mangaliman said. “Another option to save money is to maximize senior public transportation provided by your local community, which often offers senior citizens discounts.”
[See: Expenses You Can Eliminate in Retirement.]
4. Entertainment
In retirement, you have the extra time to catch a movie or go to a theater performance. You may go shopping more than you did in the past or dine out with friends more regularly. “I tell my clients to expect expenses to go up initially because now every day is the weekend,” said Alan Cantrell, president and CEO of Retirement Strategies Group in Fayetteville, Arizona, in an email.
5. Taxes
The income you receive from pensions and retirement accounts could be subject to taxes. When you take withdrawals from 401(k) plans and traditional IRAs, the distributions will be considered taxable income.
Part of your Social Security benefit could also be taxable, depending on your overall retirement income level. “If you are receiving any required minimum distributions (RMDs) or just getting some money out of your qualified plans, always have the federal and state taxes withheld so there are no surprises come tax time,” Cantrell said.
[READ: 10 Ways to Reduce Taxes on Your Retirement Savings.]
6. Debt
Besides any mortgage you may still carry, there could be other loans that need to be repaid, such as auto or boat payments. If you carry credit card debt, you’ll have payments to make on the balance. A part-time job can help you pay off debt in retirement. By getting rid of outstanding balances, you’ll be able to put those funds to use elsewhere.
7. Travel and Hobbies
If you have a bucket list, you might be looking forward to traveling more in retirement. Taking a cruise, exploring a different country or renting a beach home all come with a price tag. Similarly, there are costs associated with joining a club or taking up a new hobby.
Membership dues and equipment purchases can chip away at your monthly budget, although special discounts can lessen the sting. “Retirees can explore cost-saving measures, such as taking advantage of senior discounts, traveling during off-peak seasons or finding free or low-cost leisure activities in their community,” Burskey said.
8. Home Modifications
As you get older, you may need to have home modifications to accommodate your changing mobility needs. This could include installing ramps, modifying bathrooms, or taking out carpets and rugs to avoid the risk of falling. Those living upstairs often choose to renovate a bedroom on the ground floor to avoid climbing stairs.
9. Support for Loved Ones
Retirees sometimes offer financial help to their adult children, aging parents or grandchildren. This could include helping to cover their housing costs, long-term care fees or tuition for education. If you do support a family member or friend, it could be wise to discuss it beforehand to set the terms. You might be able to help with the first year of college for grandkids, for instance, or offer a set amount to each of your children to help them buy a home.
10. Inflation
Over time, your purchasing power tends to decline. “Inflation has put the hurt on a lot of retirees over the last few years, and if you don’t plan for it, you could be in deep trouble,” Cantrell said. Inflation increases the cost of goods and services and your retirement dollars may not go as far. “Make sure factoring in inflation is part of your planning,” Cantrell said.
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10 Costs to Include in Your Retirement Budget originally appeared on usnews.com
Update 02/28/24: This story was published at an earlier date and has been updated with new information.
