Many of us have big plans for our retirement including traveling the world, moving to another country or state, learning new hobbies, and reading every book.
But if you add those big plans to increased free time, reduced income, skyrocketing medical bills, and other emergency expenses associated with aging it will be hard to assume that we will spend less in retirement.
Our prospects to avoid outliving our nest egg significantly depends on our retirement expenses. It is really hard to predict how much we will actually spend on housing and health care when we retire. But we still have lots of other options for saving money and should not fall into the trap of overspending.
Here are 8 budget categories where you’ll likely spend more in retirement:
1. Travel and Vacations
Travel is the number one spending category on most retirees’ budget lists.
Many people are looking forward to doing all the traveling because they never had enough vacation time while working. It is so exciting to kick back and make big travel plans for your retirement bucket list.
But it can be so easy to overspend on travel and long vacations. You worked hard all your life, so you feel you deserve that 2 weeks of luxury cruise vacation or spend time in Paris. Compared with their working years, many baby boomers like to take longer cruises or cruises that visit more destinations.
But you may find yourself spending more on travel in retirement than your budget can afford it.
To make your dreams more affordable:
- Take advantage of the last-minute deals
- Travel during off-peak seasons
- Ask for senior and AARP discounts.
2. Medical expenses
It probably doesn’t come as a big surprise that we spend more on medical care as we grow older.
Healthcare costs will be one of the top expenses that most retirees have to deal with. Unfortunately, medical care costs will keep increasing as we age.
The Employee Benefit Research Institute published their study that the percentage of a household’s total spending on health care increases from 8% in preretirement households to 19% by the time a household is past the age of 85.
For the average family, the unpredictable and costly new diagnosis can create an increase in healthcare spending. Also, overall spending on health insurance premiums, prescription drugs, medical supplies, and medical services will go up.
How to save money on medical expenses?
In addition to having the best available medical insurance, the best way to save money on medications is to use generic versions of drugs rather than the name brand.
Also, you can save money by shopping around at your local pharmacies, comparing costs online, or ordering in bulk by mail. Depending on the type and amount of medication you need, the savings could be thousands of dollars for your budget.
Fitness is one of the new biggest expenses that many retirees spend money on.
According to statistics, approximately 53% of retired Americans participate in physical activity and allocate about 13% of their annual spending to fitness and leisure activities.
Retirement serves as a motivator to get fit. With more time on their hands, people start exercising more and spending money on gym memberships and fitness classes.
Also, the fear of declining health as we age motivates us to take fitness seriously. Many retirees choose to drop unhealthy habits such as drinking and smoking and pick up healthier ones.
4. Moving and Relocating
Many empty nesters start thinking about downsizing. With the kids gone, you might find it hard to keep living in 4 bedrooms house that feels too big and empty for you.
Downsizing a big home for a smaller house or condo comes as a smart strategy to save money in the long run. But the moving and relocating process can set you back thousands of dollars.
Overall, moving can be a stressful experience. Sorting through your belongings, packing, and cleaning can be overwhelming. In addition to that, high inflation will make your moving costs increase significantly.
Everything involved in a move will cost you more – movers, truck rentals, supplies, storage, etc. In addition to downsizing your home, you will need to downsize and replace your furniture – replacing a big sofa and club chairs with a smaller couch, a king-size bed with a queen-size bed, or a big dining table with a smaller kitchen-size set.
5. Vacation Home
Many baby boomers think about downsizing or moving to a different location. Others looking at the option of buying a second home to use it as a vacation home.
If you have set yourself up financially well for retirement, it can be tempting to splurge on a luxury home in a place you have always dreamed of. But in many ways, this will result in overspending.
The responsibilities of homeownership are similar for your vacation home as your primary residence. You need to consider the costs of your monthly mortgage payments, routine repairs, furniture, appliances, etc. It’s important to consider whether you are financially ready to take on these extra costs without depleting your savings and running out of money fast.
It is common for baby boomers to purchase a vacation home in a different location than their primary residence. It makes sense to choose a home in your favorite vacation destination or area with a different climate.
But it is easy to forget that the cost of living can be higher in these locations. That is why it is critical to understand the cost of living and property laws in your new location before making a final decision.
6. Utilities and Household Help
If you noticed that your utilities went up due to the inflation and working remotely, welcome to another reality of retirement.
According to the studies, the average retired household spends more each year on utilities than the average working household. It’s rather simple. Retirees spend more time at home, so they are using more utilities.
When you retire, you will see a bump in your bills such as gas, electricity, water and sewer, cable, and streaming devices because they will be used more often.
As you age, you may need to hire household and maintenance help more often than before. Maybe you do not need that help right now, but as you grow older, you will need help with raking leaves, shoveling snow, cleaning roof gutters, mowing lawns, etc.
If you want to age in place, you can get any type of personal care, household help, and services in your home which comes with a price.
According to estimates from Genworth (Financial Solutions for Long-Term Care), the median cost of hiring a home health aide is approximately $5,000 a month. And a medical response system, which is usually based on a monthly subscription, can be as much as $90 each month.
It is so easy to overspend on groceries because food is going to be your third biggest expense in retirement after housing and transportation.
On average most retirees spend around 20 percent of their income on food. These food expenses include groceries, alcohol, and dining out.
Food costs will vary depending on your diet and habits. For example, people who prefer to buy organic produce will likely spend more money than people who do not.
While you may prefer to shop for groceries in one store, it might be wise to go to different stores. Different stores run promotional sales or offer coupons that can bring the price of your groceries down. Rather than simply buying all your groceries at one store, you can save a lot of money with just a little planning ahead.
Also, eating at home more frequently will cost less than eating out. The reality is that the food you cook yourself is the cheapest food you eat. When you retire and have plenty of time, there is no more excuse such as “I do not have time to cook”.
After all, learning how to cook can become your new hobby.
8. Gifts to Family and Charitable Donations
In retirement, many people become generous with gifts to relatives and friends. They feel it rewarding to share the wealth they have accumulated during their lives.
Gifting is certainly a nice gesture that comes with the feeling of being generous. But you have to be careful and not drain your retirement funds by supporting your adult children’s lifestyle or spoiling grandchildren with vacations. One day you may end up in a position where your own lifestyle suffers.
Many retirees spend too much of their income on family and friends, while others donate excessive sums to charities. There is nothing wrong with giving donations to your favorite charity or church. But as much as you believe in generous donations, it might qualify as excessive spending.
It’s a good idea to include money for gifts and donations as a separate category in your retirement budget. If you really want to give more to charity, reduce other portions of your retirement budget such as eating out, entertainment, and expensive vacations.
- How to Cut Expenses Before You Retire
- How to Stay Fit for a Healthy Retirement
- How to Travel on a Budget in Retirement
- How to Retire Well on a Small Budget
- Planning for Retirement in Your 60s
- 5 Biggest Retirement Expenses and How to Reduce Them
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