When preparing your retirement budget, it’s sometimes hard to anticipate every expense. One of the biggest mistakes newly retired people make is underestimating how much they will spend to afford a comfortable lifestyle. They end up overspending because they miss some necessary expenses.
Underestimating expenses, or having several “one time” expenses can derail your budget and you’ll be wondering where all the money went.
Are these five things missing from your retirement budget?
Health Insurance and Medical Expenses
Health insurance can easily be left out of a budget if your employer was paying premiums or they were deducted from your paycheque when you were working. Once retired you will have to pick up the tab.
“Free” health care for Canadians only goes so far, especially for some seniors. According to a BMO Wealth report, expect to spend an average of $5,391 in out-of-pocket medical expenses every year after the age of 65.
Chronic medical conditions increase as we age. Drug plans may cover some medications, but not all.
Prescription drugs are one major cost, but there’s also things like mobility aids (canes, walkers, wheelchairs), hearing aids, health professionals such as physiotherapists, assisted living care and long-term care.
Over time, long-term care insurance premiums (if you opt for it) may rise, so it’s best to plan for it.
Vacations, Hobbies, and Recreation
You need to include money for travel and fun. Consider how your hobbies and lifestyle may change. This will change the way you spend. You need to budget more if you have expensive hobbies.
It’s easy for spending on hobbies and recreation to get out of hand. Travel may slow down over the years, but during the first 10 – 15 years or so of retirement plan on spending as much – or more – as you did before retirement. Most new retirees tend to overspend in the first few years because there’s so much they want to do.
Don’t just plan for the one nice vacation you want to take each year. Allow for those weekend jaunts and trips to see your family, too.
Don’t forget that as you get older you may want more comfortable amenities on your travels. You’re likely not up for backpacking long distances and staying at hostels any more.
If necessary, think about changes you may be willing to make that would reallocate money to this category.
Your current vehicle is probably not going to last throughout your retirement.
Whether you pay cash, or finance and have a monthly payment, at some point you will have the expense of a new vehicle. Best to have a plan.
Home and Auto Repairs
Even if you think you’re done with home renovations, plans often change. You may have to retrofit you home to allow you to stay in your home as you become less mobile.
As much as we wish our home appliances would last forever, they won’t. Replacing those appliances, getting new outdoor furniture, updating your mattress and replacing computers and TVs as technology advances, will happen at some point – as will car repairs and new tires.
Have a category in your budget where you set aside a monthly amount in a savings account that you can dip into so these “unexpected” expenses don’t derail your carefully prepared budget.
Parents and children
Many couples retire with a solid retirement plan and then their children get into financial trouble. They understandably want to help out, which is fine. But, you will have to make adjustments in your budget to cover your generosity.
If you expect to be involved in caring for a parent, 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.
Wise retirement planning involves analyzing your current expenses and anticipating all your future outlays.