Expenses Change Once You Retire, So Plan Ahead

Budgeting for your expenses, worrying about bills and accumulating assets are priorities during your working years, all so you can retire and relax later in life. Unfortunately, once you’re finally able to enjoy your retirement, the bills won’t stop being delivered. Retirees still face a range of expenses, although they will be different types of expenses.

Financial advisors agree that those approaching retirement need to begin tailoring their financial plan for a new style of living after retirement. But that does not mean forgetting about managing expenses and accumulating assets. With increased life expectancies and better health care alternatives, most retirees could spend anywhere from 10 to 30 years in retirement. Estimating retirement expenses in advance may prove vital to managing money effectively and helping your assets last as long as possible.

There are several key areas where those approaching retirement should focus their attention, according to advisors. Consider the following, where adjustments in lifestyle and expenses are likely to occur:

• Health care – Your need for medical care is likely to increase as you age. Many medical expenses are not covered by Medicare, so you may have to pay more out-of-pocket. Also, as you age, you may consider long-term care insurance or Medicare supplement (Medigap) insurance.
• Mortgage expenses and living situation – If you’ve been in your home many years, you may be in a position to pay off your mortgage, eliminating that monthly expense and freeing up money. On the other hand, you may consider moving to a smaller home, or even purchasing a second vacation home, either of which will change, and could add to, your monthly bills for insurance, property taxes, utilities and maintenance.
• Tax issues – Several things could change here, including your tax rate and the amount of taxable income you receive from investments and tax-deferred retirement accounts. Your Social Security income may be subject to taxes, depending on your income. Plus, you may ultimately choose to return to work part-time, which will affect your tax situation.
• Leisure expenses – While expenses for commuting and other work-related costs decline, your travel, vacation and hobby expenses are likely to increase.

Without doubt, your life will change once you retire, and your financial situation will change as well. Make sure you consider all the possibilities so your retirement years are limited only by your imagination, not by your finances. Contact your financial advisor today and talk about your plans.

The preceding article was provided by James Slaughter and is meant to be general in nature and should not be construed as investment or financial advice related to your personal situation.  Please consult your financial advisor prior to making financial decisions.  James Slaughter is a Financial Advisor with Waddell & Reed and can be reached at 916-566-0975 x 105. Waddell & Reed, Inc., Member FINRA/SIPC.