5 Retirement Expenses You Should Make Sure to Budget For
The average age of U.S. citizens entering retirement is 62 which is 4 years ahead of the expected retirement age of 66. Despite this definitive milestone, 33% of Americans do not have a single cent saved toward retirement.
The problem is largely due in part to rising costs of living and stagnating wages in combination to increasing debts. These factors are making it impossible for your average person to retire comfortably.
A solution is to educate Americans about their retirement options and savings. And, encouraging a sense of worth to invest in the programs (like 401k’s) despite the already difficult task of maintaining.
This is the topic of our articles – let’s get educated bout the expenses you should make a budget for.
1. Retirement Taxes
Those saving for retirement will require paying taxes on several items:
- Retirement savings
- Estate taxes
Those with 401k’s and IRA’s are finding their income taxed due to early retirement. Ordinary income and losses like stock investments and bonds will also process. High-income earners will also find additional taxes on Medicare and capital gains.
A general rule of thumb is to account 25% of your income toward paying taxes. Else, use a retirement tax calculator if you desire dollar-for-dollar amounts.
2. Funeral Expenses
Placing the burden of life’s end on the family or estate is an unfortunate circumstance of improper financial planning. Pre-planning a funeral is a solution to this problem.
The average cost of a funeral is closing in on $20,000.
Burials are grouped by three options:
- Graded benefit
- Modified benefit
- Guaranteed issue
If you were to begin paying for burial insurance by age 40, then you’ll pay just $15-$30 a month for a policy covering $10,000 in expenses.
Searching online, there are plenty of sites where you can find burial insurance explained in more detail.
3. The Unexpected
Natural disasters, sudden illness, and accidents.
Each of these unexpected events cause major setbacks with financial planning.
For example, one can expect to pay upward of $60k+ for a nonfatal, disabling injury due to a car accident. Health insurance will cover a good amount of these costs, but it will leave many still footing a hefty medical bill.
A consensus within the personal finance industry recommends an emergency savings of at least 6 months of expenses. A 90/10 split of your income toward savings will generally produce this emergency fund within a few, short months.
4. Home/Auto Repairs
House and transportation will account for nearly half of all expenses one will pay throughout their lifetime. It’s a hefty cost when relying on retirement savings and/or social security which is why many are deciding to down-size as they reach their 60’s.
Consider these items:
- Roofing replacement ranges from $4-6,000 and happens about every 20 years
- The national average of auto repair costs is close to $400
- General housing maintenance settles in around $3,000 a year
It’s recommended you consider setting aside 1% of the cost of your home to go toward housing repairs and maintenance. This percentage is a good metric for your transportation, too.
5. Lifestyle Changes
The biggest blow to finances happens during a lifestyle shift such as when an individual increases their take-home pay and begins adjusting their spending based on this new, perceived social “standing”.
Typical rising costs from lifestyle shifts happen by:
- Frequent eating out versus cooking in
- Taking on car payments vs buying used
- Expanding entertainment options vs sticking to basics
- Increasing utility bills vs mindful living
Those reaching their later years typically fall into higher tax brackets due to career progression and entrepreneurship. With it comes mental shifts that’s hard to scale back when they’re required to live on a budget during their retirement years.
Empowerment through Education
You’re not alone on this journey into retirement and many have paved the way for a comfortable transition from the workforce to enjoying your later years. It’s important to understand your cost-of-living and adjust accordingly.
Use resources found in this post and take time to talk with financial planners to broaden your knowledge and understanding of the topic. Do so and you’ll avoid becoming one of those 1-in-3 that are lost on their way to retirement.