Seventy-two percent of adults say they feel stressed about money. Financial stress can erode quality of life and even lead to depression. For some people, financial stress actually undermines their ability to buckle down, make a plan, and start saving. The right plan can help you steadily work toward the retirement of your dreams. Before you devise your retirement plan, you need a realistic portrait of the expenses you can expect as you age. Here’s what to consider as you move closer to your golden years.
Costs to Plan For
Every retirement is different, so don’t just work your way down a checklist. Spend some time thinking about your ideal retirement. Where do you want to live? What do you do? Where do you want to retire? Then build your anticipated budget around this vision. Some costs you can expect include:
Medicare should fund a significant portion of your healthcare expenses, especially basic costs such as doctor’s appointments and preventative care. You’ll still have to pay a deductible and may have to pay premiums, depending on which plan you use. You may also opt for a premium-based prescription drug plan. Some services, especially alternative medical services, may not be fully covered, so budget accordingly.
Housing and Other Basic Living Expenses
Maybe retirement means moving into your dream house, or maybe it makes more sense to downsize and move into a condo or apartment. Either way, you'll need to set aside money for housing, including rent or a mortgage, utilities, furniture, and periodic/unexpected housing costs such as repairing broken gutters or paying a deposit on a new rental home.
Everyone needs to eat. In retirement, you might find that you spend more time thinking about, shopping for, and preparing food than you once did. Carve out a healthy budget that allows you to occasionally eat out, to prepare and cook nutritious food, and to adapt your diet to changing health needs.
Home Ownership Costs
As you know, your home is an important investment. It can also cost quite a bit of money. Setting aside money for your mortgage is not enough. Be prepared to fund additional home ownership costs, such as:
- Property taxes and homeowners insurance
- Renovations to keep your home up-to-date
If you sell your home, you can avoid many of these costs. You may even earn a tidy profit that you can then redirect to a new home or a senior living community. Be prepared to set aside some money to pay your home sales team and to fund any updates that can increase your home’s value.
Most seniors will eventually need support from a caregiver. If you’re lucky enough to live a long life, the odds that you will need long-term care increase, so don’t forget about this important expense. One way to reduce costs is to invest in long-term care insurance now. Spend some time researching your long-term care options and start socking away money. Remember that if you move out of your home, you can use the money from a home sale to fund all or a portion of long-term care costs. Medicaid also funds many long-term care options, so if you’re eligible, apply for Medicaid.
Fun and Recreation
Everyone deserves a little fun — especially after a lifetime of working. Consider how you want to spend your retirement. Do you want to go back to school? Take up a new hobby? Travel? Join a book club? Set aside some money to fund these ventures. If you choose to move to a senior living community, most recreational costs will be built into the price of the community.
Numerous organizations offer discounts and other promotions for seniors. For example, for $80, you can buy a lifetime pass to the nation’s national parks. A little research may uncover some surprisingly affordable options for an enjoyable retirement.
A Legacy for Loved Ones
What do you want to leave behind? We all aspire to enrich our loved ones’ lives with good memories, wisdom, and lots of love. But you can leave more than just the joy of a life well-lived, even if you’re not wealthy.
Consider how your estate might help support your loved ones. You could pay for a grandchild’s college, help a friend get out of debt, fund a car for a struggling child, or even donate money to your favorite charity or arts organization. If leaving something behind is important to you, meet with an estate planner. You don’t need a lot of money to leave enough behind to make a difference in someone’s life, especially if you start investing early.
Moreover, by carefully budgeting, you ensure you won’t run out of money before you die. That means there will be money left over for loved ones to pay your final expenses and to inherit a small nest egg.
Managing Unexpected Costs
Unexpected costs are a part of life. When you’re trying to budget for retirement, they can feel like a ticking time bomb, just waiting to blow a hole in your savings. But it’s possible to plan for those inevitable costs, even if you don’t know exactly what they’ll be. For example, if you have an old house, you might not know whether the roof will need to be replaced or that big oak will need to be trimmed. But you do know that similar expenses will spring up eventually. Plan for a small rainy day fund so that these surprises don’t ruin your budget.
The right financial planner can help you estimate the total cost of unexpected expenses.
Where to Seek Planning Help
You wouldn’t try to treat your own ear infection or pull your own tooth. Experts exist for a reason. So take advantage of the many financial and legal experts who can help you manage your finances, no matter what life holds in store. Some excellent resources include:
- The right financial planner. A financial planner can help you plan for the future, ensure you have the right mix of investments, and better manage your money. Be aware that many financial planners get a commission for recommending specific products, so make sure to choose a fee-only financial planner who works only for you.
- A credit counselor from the National Foundation for Credit Counseling. If you’re in debt and don’t know how to get out, a financial counselor from this nonprofit organization can help you find a way forward.
- An elder law attorney. The right elder law lawyer can help you understand your legal options, write a will, plan for how to manage health challenges, and navigate family conflicts over senior care.
- The AARP Retirement Calculator. This tool helps you determine what your financial needs will be in retirement, then devise a plan for reaching them.
- A geriatric care manager. If you’re overwhelmed by your options for senior care or not sure where to begin the search, a geriatric care manager can help you explore your options, coordinate care, and more.
Perhaps most importantly of all, spend some time talking to your loved ones about your financial plans and long-term goals. Don’t assume they know what you want. Open, ongoing conversations foster understanding, protect your long-term interests, and can help bring you closer to the people you love most. Some important topics to discuss with your loved ones include:
- Your financial plans.
- Any financial concerns you have.
- Whom you would like to advocate for you if you are no longer able to advocate for yourself.
- Your will and estate. Discussing what you're leaving to whom can ease resentment and hurt feelings and prevent disputes after you pass.
- Your specific wishes for your retirement, especially if you develop serious health issues.
- Your specific wishes for end-of-life care. Consider hiring an attorney to craft an advance directive, which tells care providers what you want if you are no longer able to assert your wishes. You may also wish to craft a power of attorney, which nominates someone to act in your stead if you are incapacitated or otherwise unable to assert your wishes.
The right senior living community offers an incredible retirement filled with great food, outstanding conversation, plenty of activities, and more. For seniors concerned about costs, senior living may be a more affordable solution than home ownership, especially if you sell your home to help fund the move. Senior living also offers a more consistent budget. You’ll know exactly how much you need to fund your retirement over the long term.
Arbor’s senior living cost calculator can help you compare costs of home ownership and senior living. We’re happy to walk you through the benefits of senior living and talk to you about your long-term retirement goals. Give us a call, chat with us or stop by one of our community events to learn more.