Don’t Miss These Commonly Overlooked Retirement Expenses

By on April 5, 2020
Retirement expenses

A large part of preparing for retirement is getting your finances in order. If you’re going to say good-bye to the 9 to 5 grind, you have to be sure you have the financial means to accommodate your cost of living and ideal lifestyle. As such, creating a budget can give you a clearer picture of where you are and where you need to be to retire successfully. Accuracy, of course, so do not miss these commonly overlooked retirement expenses so essential to getting your retirement planning right. 

A retirement budget needs to include every expense you’ll be responsible for once you retire. Typically, people include things like the rent, mortgage, utilities, groceries, and transportation costs, yet, they commonly forget expenses like those listed below: 

Health Insurance

Whether you have a pension package that includes health benefits or you plan on applying for medicare there are still health-related costs that you’ll be responsible for. You will have to pay a deductible, which is the amount you must pay before your insurance kicks in. You’ll also be responsible for copays, prescriptions, and certain medical supplies and services.  Depending on your health status at the time of retirement, you could be looking at several thousand dollars a year. Failure to add this expense into your budget could result in you not being able to get the medical care you need. 

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Taxes

Though it would be nice to never have to pay any taxes after you retire, this isn’t the case. While some of your retirement income is protected from being taxed, other sources are taxable. This includes deductions from your retirement or pension account, your social security benefits, and, if you plan on starting a business or side gig, you’ll be obligated to pay taxes on that as well. Though your reduced income can decrease the amount of taxes you owe, you still want to set aside money for your income taxes each year to avoid penalties and fees. 

Entertainment

Now that you have fewer responsibilities throughout the day, you’ll need to stay entertained. Whether it’s going out to lunch with friends, watching cable television, going to the movies, taking up classes, or some other form of entertainment, you should include these things in your budget. Think about the things you like to do, then do some research to find out how much it costs on average and add this to your budget.

Travel 

Traveling during retirement is very common. If this is a dream of yours, you do want to budget for it. Whether you want to travel domestically or internationally, you should do some research to determine how much it costs to go to destinations you’re most interested in. After deciding on the places you’d like to visit and getting a ballpark idea of how much it costs, tally up the total of all your potential trips and add this to the list of things you need to save up for. 

Business Costs

Another common practice during retirement is to start a business or side gig doing something you’ve always been passionate about. Without the pressure of having to care for a family full-time, you can work on something that drives your passion. Starting and operating a business, however, isn’t free. There are several out of pocket expenses you’ll be responsible for until your business starts generating enough funds to cover the costs. You can use the internet to get some averages on the cost of starting a business and then determine how much you’d need to save from now until you retire. 

Rainy Days

Last, but certainly not least, when planning for retirement, you should have a nest egg or cushion set aside for rainy days. You never know when an emergency could arise that requires you to have a large sum of money. An adult child could lose their job and need help supporting their kids, something in the house could break down requiring a professional repair or replacement, or a number of other unforeseen events could set you back several hundred if not, thousands of dollars. It is highly recommended that before you retire that you save at least 3 to 6 month’s worth of expenses in an account for a rainy day. 

There are a lot of steps to planning for retirement. However, the main objective is to ensure that you have the cash necessary to sustain a living after leaving the stability of a job. As you begin putting together a retirement budget to see how close you are to reaching your savings goals, be sure that you haven’t overlooked essential expenses as it can throw off your planning and cause several financial issues down the road.

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Don’t Miss These Commonly Overlooked Retirement Expenses