Navigating Retirement Expenses: What expenses do I need to think about for retirement?
As you approach retirement, understanding and planning for your future expenses is crucial for financial security and peace of mind. In this comprehensive guide, we'll explore the key expenses you need to consider for retirement in 2024 and beyond, along with how a financial advisor can help you navigate this complex landscape.
The Rising Cost of Retirement
Before diving into specific expense categories, it's important to understand the overall financial landscape for retirees. According to Fidelity Investments' 2024 Retiree Health Care Cost Estimate, a 65-year-old couple retiring this year can expect to spend an average of $165,000 on health care and medical expenses throughout retirement [1]. This figure has more than doubled since 2002, highlighting the increasing financial burden retirees face.
Key Retirement Expenses to Consider
1. Housing
Housing remains the largest expense for retiree households, accounting for over 35% of annual expenditures in 2022. The average retiree household spent $20,362 on housing costs, including mortgage or rent, property taxes, insurance, maintenance, and repairs [2].
How a financial advisor can help: A financial advisor can assist in evaluating your current housing situation and exploring options such as downsizing, relocating to a lower-cost area, or considering retirement communities. They can help you balance the emotional and financial aspects of housing decisions.
2. Healthcare
Healthcare is often the most unpredictable and potentially costly expense in retirement. As mentioned earlier, Fidelity estimates that a 65-year-old retiring in 2024 might spend $165,000 on healthcare throughout retirement [1]. This includes Medicare premiums, out-of-pocket costs, and expenses not covered by Medicare, such as dental and vision care.
How a financial advisor can help: A financial advisor can help you understand your Medicare options, explore supplemental insurance plans, and factor healthcare costs into your overall retirement plan. They can also guide you on health savings accounts (HSAs) and long-term care insurance options.
3. Transportation
Transportation is the second-largest expense category for retiree households. In 2022, the average retiree household spent $8,172 annually on transportation costs, including vehicle purchases, maintenance, fuel, and insurance [2].
How a financial advisor can help: An advisor can help you evaluate your transportation needs in retirement and factor these costs into your budget. They might suggest strategies like downsizing to one vehicle or exploring public transportation options to reduce expenses.
4. Food and Dining
While often overlooked, food expenses can significantly impact your retirement budget. As retirees often have more time for leisure activities, dining out may become more frequent, potentially increasing food-related expenses.
How a financial advisor can help: A financial advisor can help you create a realistic food budget that balances your lifestyle preferences with your financial goals. They might suggest strategies for reducing food costs without sacrificing quality of life.
5. Utilities
Utility costs, including electricity, gas, water, phone, and internet, averaged $4,236 annually for retiree households in 2022 [2]. These costs can vary significantly based on location and usage patterns.
How a financial advisor can help: An advisor can help you estimate utility costs based on your retirement location and lifestyle. They might suggest energy-efficient upgrades or lifestyle changes to reduce these expenses.
6. Travel and Leisure
Many retirees look forward to increased travel and leisure activities. While these expenses can vary widely based on individual preferences, they're an important consideration in retirement planning.
How a financial advisor can help: A financial advisor can help you budget for your desired travel and leisure activities, balancing these aspirational expenses with necessary costs. They might suggest strategies like travel rewards credit cards or off-season travel to maximize your leisure budget.
7. Long-Term Care
Long-term care is a significant potential expense that many retirees overlook. According to recent data, the median cost of assisted living is $4,917 per month, or about $59,000 per year [5].
How a financial advisor can help: An advisor can help you understand your long-term care options and explore insurance solutions. They can also help you factor potential long-term care costs into your overall retirement plan.
Regional Variations in Retirement Costs
It's important to note that retirement expenses can vary significantly depending on where you choose to retire. A recent analysis by GOBankingRates reveals that the annual cost of a comfortable retirement can differ by as much as $67,981 between states [3].
For example, Hawaii tops the list with the highest average retirement costs, where retirees are expected to spend around $129,296 annually for a comfortable lifestyle. In contrast, Mississippi has the lowest average requirement, with retirees needing only $61,315 per year [3].
How a financial advisor can help: A financial advisor can help you evaluate potential retirement locations based on cost of living, tax implications, and lifestyle preferences. They can provide detailed cost comparisons and help you understand how relocating might impact your overall financial picture.
The Impact of Inflation on Retirement Expenses
Inflation is a critical factor to consider in retirement planning. The Bureau of Labor Statistics reported that retiree households saw increases across all major expense categories in 2022, with overall spending up 10.9% from the previous year [2].
How a financial advisor can help: A financial advisor can help you create a retirement plan that accounts for inflation. They might suggest investment strategies to help your savings keep pace with rising costs and advise on when to claim Social Security benefits to maximize your inflation-protected income.
The Role of Social Security in Covering Retirement Expenses
While Social Security provides a foundation for retirement income, it's typically not enough to cover all expenses. In 2024, the average monthly Social Security benefit is $1,907, which amounts to $22,884 annually. This falls well short of the average retiree household's annual expenses of $60,844 [5].
How a financial advisor can help: A financial advisor can help you understand your projected Social Security benefits and develop strategies to maximize them. They can also help you create a plan to bridge the gap between Social Security income and your expected expenses.
The Importance of Emergency Savings in Retirement
Unexpected expenses don't stop in retirement. Having an emergency fund remains crucial for financial security. Financial experts often recommend keeping 3-6 months of living expenses in easily accessible savings.
How a financial advisor can help: An advisor can help you determine an appropriate emergency fund size based on your specific circumstances and incorporate this into your overall retirement plan. They can also suggest strategies for building and maintaining your emergency fund.
The Impact of Taxes on Retirement Expenses
Taxes can significantly impact your retirement finances. Depending on your income sources and location, you may owe federal and state income taxes, as well as property taxes.
How a financial advisor can help: A financial advisor can help you understand the tax implications of different retirement income sources and develop tax-efficient withdrawal strategies. They can also help you explore tax-advantaged savings options and consider the tax environment of potential retirement locations.
The Benefits of Working with a Financial Advisor
Given the complexity of retirement planning, working with a financial advisor can provide significant benefits. Americans who work with a financial advisor expect to retire two years earlier (at age 64 versus 66) and have saved twice as much for retirement ($132,000 versus $62,000) compared to those without an advisor [7].
Moreover, 75% of Americans with an advisor believe they will be financially prepared for retirement, compared to just 45% of those without an advisor [7]. Financial advisors are also considered the most trusted source for financial advice, chosen by 33% of Americans, compared to 16% who trust family members and just 4% who trust online financial influencers [7].
Conclusion
Planning for retirement expenses requires careful consideration of numerous factors, from housing and healthcare to leisure activities and potential long-term care needs. While the task may seem daunting, understanding these expenses is the first step toward a secure and enjoyable retirement.
Working with a financial advisor can provide valuable guidance in navigating these complex decisions. They can help you create a comprehensive retirement plan that accounts for your unique circumstances, goals, and concerns. With proper planning and guidance, you can approach retirement with confidence, knowing you're prepared for the expenses that lie ahead.
Remember, it's never too early to start planning for retirement. The sooner you begin, the more options you'll have to secure your financial future. Whether you're just starting your career or nearing retirement age, consider reaching out to a financial advisor to help you navigate the path to a comfortable and fulfilling retirement.
Meet
Michael Most
Hello there 👋🏼 I'm Michael Most, and I've dedicated the past 27 years to the dynamic world of financial services. My journey began at American Express Financial Advisors, where I wore various hats, transitioning from Training Manager to District Manager and eventually finding my niche as a Private Wealth Advisor.
References:
[2]: https://www.visionretirement.com/articles/biggest-retiree-expenses
[5]: https://www.westernsouthern.com/retirement/retirement-budget
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors
Navigating Retirement Expenses: What expenses do I need to think about for retirement?
As you approach retirement, understanding and planning for your future expenses is crucial for financial security and peace of mind. In this comprehensive guide, we'll explore the key expenses you need to consider for retirement in 2024 and beyond, along with how a financial advisor can help you navigate this complex landscape.
The Rising Cost of Retirement
Before diving into specific expense categories, it's important to understand the overall financial landscape for retirees. According to Fidelity Investments' 2024 Retiree Health Care Cost Estimate, a 65-year-old couple retiring this year can expect to spend an average of $165,000 on health care and medical expenses throughout retirement [1]. This figure has more than doubled since 2002, highlighting the increasing financial burden retirees face.
Key Retirement Expenses to Consider
1. Housing
Housing remains the largest expense for retiree households, accounting for over 35% of annual expenditures in 2022. The average retiree household spent $20,362 on housing costs, including mortgage or rent, property taxes, insurance, maintenance, and repairs [2].
How a financial advisor can help: A financial advisor can assist in evaluating your current housing situation and exploring options such as downsizing, relocating to a lower-cost area, or considering retirement communities. They can help you balance the emotional and financial aspects of housing decisions.
2. Healthcare
Healthcare is often the most unpredictable and potentially costly expense in retirement. As mentioned earlier, Fidelity estimates that a 65-year-old retiring in 2024 might spend $165,000 on healthcare throughout retirement [1]. This includes Medicare premiums, out-of-pocket costs, and expenses not covered by Medicare, such as dental and vision care.
How a financial advisor can help: A financial advisor can help you understand your Medicare options, explore supplemental insurance plans, and factor healthcare costs into your overall retirement plan. They can also guide you on health savings accounts (HSAs) and long-term care insurance options.
3. Transportation
Transportation is the second-largest expense category for retiree households. In 2022, the average retiree household spent $8,172 annually on transportation costs, including vehicle purchases, maintenance, fuel, and insurance [2].
How a financial advisor can help: An advisor can help you evaluate your transportation needs in retirement and factor these costs into your budget. They might suggest strategies like downsizing to one vehicle or exploring public transportation options to reduce expenses.
4. Food and Dining
While often overlooked, food expenses can significantly impact your retirement budget. As retirees often have more time for leisure activities, dining out may become more frequent, potentially increasing food-related expenses.
How a financial advisor can help: A financial advisor can help you create a realistic food budget that balances your lifestyle preferences with your financial goals. They might suggest strategies for reducing food costs without sacrificing quality of life.
5. Utilities
Utility costs, including electricity, gas, water, phone, and internet, averaged $4,236 annually for retiree households in 2022 [2]. These costs can vary significantly based on location and usage patterns.
How a financial advisor can help: An advisor can help you estimate utility costs based on your retirement location and lifestyle. They might suggest energy-efficient upgrades or lifestyle changes to reduce these expenses.
6. Travel and Leisure
Many retirees look forward to increased travel and leisure activities. While these expenses can vary widely based on individual preferences, they're an important consideration in retirement planning.
How a financial advisor can help: A financial advisor can help you budget for your desired travel and leisure activities, balancing these aspirational expenses with necessary costs. They might suggest strategies like travel rewards credit cards or off-season travel to maximize your leisure budget.
7. Long-Term Care
Long-term care is a significant potential expense that many retirees overlook. According to recent data, the median cost of assisted living is $4,917 per month, or about $59,000 per year [5].
How a financial advisor can help: An advisor can help you understand your long-term care options and explore insurance solutions. They can also help you factor potential long-term care costs into your overall retirement plan.
Regional Variations in Retirement Costs
It's important to note that retirement expenses can vary significantly depending on where you choose to retire. A recent analysis by GOBankingRates reveals that the annual cost of a comfortable retirement can differ by as much as $67,981 between states [3].
For example, Hawaii tops the list with the highest average retirement costs, where retirees are expected to spend around $129,296 annually for a comfortable lifestyle. In contrast, Mississippi has the lowest average requirement, with retirees needing only $61,315 per year [3].
How a financial advisor can help: A financial advisor can help you evaluate potential retirement locations based on cost of living, tax implications, and lifestyle preferences. They can provide detailed cost comparisons and help you understand how relocating might impact your overall financial picture.
The Impact of Inflation on Retirement Expenses
Inflation is a critical factor to consider in retirement planning. The Bureau of Labor Statistics reported that retiree households saw increases across all major expense categories in 2022, with overall spending up 10.9% from the previous year [2].
How a financial advisor can help: A financial advisor can help you create a retirement plan that accounts for inflation. They might suggest investment strategies to help your savings keep pace with rising costs and advise on when to claim Social Security benefits to maximize your inflation-protected income.
The Role of Social Security in Covering Retirement Expenses
While Social Security provides a foundation for retirement income, it's typically not enough to cover all expenses. In 2024, the average monthly Social Security benefit is $1,907, which amounts to $22,884 annually. This falls well short of the average retiree household's annual expenses of $60,844 [5].
How a financial advisor can help: A financial advisor can help you understand your projected Social Security benefits and develop strategies to maximize them. They can also help you create a plan to bridge the gap between Social Security income and your expected expenses.
The Importance of Emergency Savings in Retirement
Unexpected expenses don't stop in retirement. Having an emergency fund remains crucial for financial security. Financial experts often recommend keeping 3-6 months of living expenses in easily accessible savings.
How a financial advisor can help: An advisor can help you determine an appropriate emergency fund size based on your specific circumstances and incorporate this into your overall retirement plan. They can also suggest strategies for building and maintaining your emergency fund.
The Impact of Taxes on Retirement Expenses
Taxes can significantly impact your retirement finances. Depending on your income sources and location, you may owe federal and state income taxes, as well as property taxes.
How a financial advisor can help: A financial advisor can help you understand the tax implications of different retirement income sources and develop tax-efficient withdrawal strategies. They can also help you explore tax-advantaged savings options and consider the tax environment of potential retirement locations.
The Benefits of Working with a Financial Advisor
Given the complexity of retirement planning, working with a financial advisor can provide significant benefits. Americans who work with a financial advisor expect to retire two years earlier (at age 64 versus 66) and have saved twice as much for retirement ($132,000 versus $62,000) compared to those without an advisor [7].
Moreover, 75% of Americans with an advisor believe they will be financially prepared for retirement, compared to just 45% of those without an advisor [7]. Financial advisors are also considered the most trusted source for financial advice, chosen by 33% of Americans, compared to 16% who trust family members and just 4% who trust online financial influencers [7].
Conclusion
Planning for retirement expenses requires careful consideration of numerous factors, from housing and healthcare to leisure activities and potential long-term care needs. While the task may seem daunting, understanding these expenses is the first step toward a secure and enjoyable retirement.
Working with a financial advisor can provide valuable guidance in navigating these complex decisions. They can help you create a comprehensive retirement plan that accounts for your unique circumstances, goals, and concerns. With proper planning and guidance, you can approach retirement with confidence, knowing you're prepared for the expenses that lie ahead.
Remember, it's never too early to start planning for retirement. The sooner you begin, the more options you'll have to secure your financial future. Whether you're just starting your career or nearing retirement age, consider reaching out to a financial advisor to help you navigate the path to a comfortable and fulfilling retirement.
Meet
Michael Most
Hello there 👋🏼 I'm Michael Most, and I've dedicated the past 27 years to the dynamic world of financial services. My journey began at American Express Financial Advisors, where I wore various hats, transitioning from Training Manager to District Manager and eventually finding my niche as a Private Wealth Advisor.
References:
[2]: https://www.visionretirement.com/articles/biggest-retiree-expenses
[5]: https://www.westernsouthern.com/retirement/retirement-budget
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors
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