This post Budgeting Tricks for Retirement appeared first on Daily Reckoning.
Retirement is an exciting thing to look forward to, but it does come with its own set of challenges when it comes to preparing for this next step in life. Once you retire; most likely, you will have to live on a fixed income. This can be an adjustment for many people, but with the right frame of mind, you’ll be able to prepare for any unexpected expenses.
According to the U.S. Bureau of Labor Statistics, the average retired household has about 22% lower costs than the average working household and spends about $14,000 less per year. It also reports that the typical senior spends about $46,000 a year in retirement. Because the average retirement length in the country is 18 years, we can project that the typical retiree will need an $828,000 nest egg to pay the bills upon leaving the workforce.
I know these are big numbers, but not to fear. Let’s go through the major expenses you can expect to encounter in retirement so you are as prepared as possible!
1. Health Care
Health Care is often times a seniors greatest expense in retirement. You may even begin your retirement in good health, but develop medical issues later in life. You can expect your spending on healthcare to rise from the working average of $4,000 to the retiree average of $6,500.
Many retirees do qualify for Medicare; however, many fail to realize that Medicare is not completely free. Basic Medicare costs $135 a month. It’s also important to remember that Medicare doesn’t cover many additional medical expenses such as dental work, glasses, or hearing aids. You may also want to consider purchasing an additional plan for prescription drugs and supplemental healthcare.
Thankfully there are steps you can take to lower your healthcare spending! Consider a Medicare Advantage plan; an alternative to traditional Medicare, Medicare Advantage is an all-in-one health and drug plan, and it typically offers a wider range of coverage than original Medicare will give you. You can also opt for cheaper generic prescription drugs and review your plan each year so you can be sure you’re paying for the plan that best fits your life.
2. Housing
Housing is another of the largest expenses for retired people. A large percentage of seniors, around 80%, enter retirement mortgage free; however, spending on housing can come as a surprise to many retirees. As houses age, they tend to require more upkeep and repairs which leads to more spending on maintenance, as you may be unable to complete housing work on your own. Property taxes also have a tendency to rise over time, even if home values decrease.
You may want to consider downsizing in your retirement. A smaller house will ultimately cost less to maintain and result in a lower property tax bill and reduced homeowners insurance. Another option is to rent in your retirement; this will also help eliminate many of the expenses associated with homeownership, like property taxes, maintenance, and repairs.
3. Transportation
Transportation costs decline on average from about $10,000 per year for working people to around $7,500 annually among retirees. This happens because retired people no longer have to commute to work and tend to travel fewer miles. However, if you choose to keep your car in retirement, AAA estimates it costs $8,849 a year, on average to cover the cost of insurance, maintenance and repairs.
It may make more financial sense to sell your car in retirement if you’re only using it a few times a week. With the convenience of rideshare options and public transportation, it may be a great way to save some money to get rid of your car.
In addition, retirees often qualify for senior discounts on public transportation. For example, people age 65 and over qualify for discounted rates on public transportation in Boston, Washington and San Francisco. In the Philadelphia metro area, seniors are eligible to ride public transportation for free.
4. Food
At the end of the day, everyone needs to eat. Food costs for retirees are 23% less than for working people, usually because there are less mouths to feed, however you should still expect to spend around $483 a month, on average, for food expenses.
There are a ton of ways to keep food costs down in retirement. One of the best ways is to cut down on eating out. Restaurants tend to mark up prices by 300%, so if you do choose to dine out, make sure you are budgeting that out and taking advantage of early bird specials whenever possible.
Take advantage of your extra time by putting more effort into bargain and bulk shopping. It’s also important to make thorough shopping lists to avoid unnecessary spending once you’re in the store.
5. Entertainment
The last major area of spending in retirement is entertainment. Now that you aren’t working every day, you have a lot of extra time on your hands to fill. The average senior today spends $197 a month on leisure, but remember this does not include any extensive traveling.
There are tons of ways to cut costs on activities in retirement. Many museums, movie theaters, and national parks offer senior discounts. Check out your local senior center for free events or further discounts. You can also save money on these costs by volunteering. With some of your extra time, picking up volunteer work at a museum; for example, will often allow you free access to the space.
If you are a senior who wants to travel, make sure you are doing extensive research and budgeting. Consider traveling at off-peak times of year or exploring domestic locations. Additionally, it’s wise to plan big trips for the early part of your retirement when you are most financially and physically able to enjoy them the most.
I hope you found these expense breakdowns helpful! Planning financially for retirement can be stressful, but don’t forget all the good that comes with being prepared. You deserve to make the most of your retirement so start making your plans today.
To a richer life,
Nilus Mattive
The post Budgeting Tricks for Retirement appeared first on Daily Reckoning.