When developing a retirement budget, anticipating every expense one might face can be difficult, as it’s easy to underestimate how much will be needed to maintain a comfortable lifestyle. If unexpected expenses aren’t allowed for, one could end up short and wondering where all the money went. Below are some examples of these types of expenses.
Health insurance and medical expenses: If you had a health coverage plan through your employment, you might easily miss budgeting for some things that you will now have to pick up the tab for. Our “free” health care in Alberta only goes so far, so expect an average of $5,400 in out-of-pocket medical expenses for every year after age 65. Prescription drugs are one major cost, but there are also mobility aids such as canes, walkers and wheelchairs, hearing aids, health professionals such as physiotherapists and dentists, assisted living care and long-term care. Long-term care insurance might be a consideration, but premiums increase as you age, so it’s best to plan for the cost of this coverage sooner rather than later.
Vacations, hobbies, and recreation: Travel and fun takes money in retirement, and once retired your hobbies and lifestyle may change. It’s important to budget more as it’s easy for hobbies and recreation expenses to get out of hand. The desire to travel may slow down over the years, but during the first 10 to 15 years of retirement you should plan on spending as much or more as you did before retirement. Many new retirees tend to overspend during the first few years because there’s so much they want to do!
New vehicles: Your current vehicle is unlikely to last through your retirement. Whether you’re paying cash or financing, at some point you will need to cover the expense of a new vehicle, so it’s best to plan ahead for this.
Home and auto repairs: Don’t think you’re done with home renovations, as plans change. You might have to do some remodeling or retrofitting to allow you to stay in your home if you become less mobile down the road. And home appliances don’t last forever. Replacing those appliances, getting new outdoor furniture, updating your mattress, replacing computers and TVs as technology advances will happen at some point, as will car repairs and new tires.
Parents and children: Many couples go into retirement with a solid financial plan, but get derailed when their children get into financial difficulties. Often the parents want to help out which is understandable, but they will have to make adjustments to their budget to cover their generosity. For those who might be involved in caring for a parent will need to factor in the potential costs. A serious illness might have your parent moving in with you, or you may need to help with medical bills.
Final thoughts: Retirement planning today involves analyzing your current expenses and anticipating all future cash outlays, then factor in inflation. Consider that 4% inflation means something costing $100 today will cost you twice that 18 years from now! Set aside a fixed monthly amount into a “rainy day” savings account, so these types of unexpected expenses don’t derail your carefully prepared retirement budget.
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