How To Calculate Retirement Living Expenses To Ensure You Are Prepared

Retirement Living Expenses

Do you want to know how to calculate retirement living expenses? Retirement living costs vary widely depending on location, lifestyle, and personal preferences. But regardless of where you live, you’ll likely face some common expenses when planning for retirement. Here’s a look at some of the most common costs involved in retiring early.

1. Health Care Costs

Health care costs are typically the largest expense retirees face. According to the U.S. Census Bureau, health insurance premiums increased by 4.9 percent between 2010 and 2015.6 And according to the Kaiser Family Foundation, the average cost of private health insurance coverage was $12,859 per individual in 2016.7

But you may be able to reduce these costs by choosing Medicare over traditional Medicare, enrolling in a high deductible plan, or purchasing supplemental insurance.

2. Housing Costs

Housing costs also tend to be higher in retirement than during active years. For instance, housing costs were 3.3 times greater for households aged 65–74 in 2017 compared to 2000, according to the National Association of Home Builders.

However, you can save money by downsizing, moving closer to family members, or buying a smaller home.

3. Transportation Costs

Transportation costs tend to decrease as we age. However, transportation costs can still rise as we move away from urban areas and toward rural ones.

For instance, the median annual cost of owning a car in the United States rose from $8,700 in 2013 to $11,000 in 2018, according to the American Automobile Association.9

You can cut back on transportation costs by driving less, taking public transit, or switching to a ride sharing service like Lyft or Uber.

4. Taxes and Insurance

Taxes and insurance costs generally go up as we age. These costs can be reduced by saving before taxes and investing after taxes.

5. Social Security Benefits

Social security benefits are based on earnings throughout your career. As a result, social security benefits are usually highest when you’re younger.

But you can boost your monthly benefit by delaying receiving benefits until later in life.

6. Supplemental Insurance

Supplemental insurance is often necessary if you have medical conditions that could cause significant financial hardship. For example, many people with diabetes need supplemental insurance because their condition requires them to take insulin.

If you don’t have supplemental insurance, you could end up paying thousands of dollars out-of-pocket each year.

7. College Savings

College savings plans are great ways to prepare for retirement. You can set aside money for college tuition, pay off student loans, or use it to fund other goals.

The key is to start saving now so you have enough money saved by the time you retire.

8. Long Term Care

Long term care (LTC) refers to services provided to individuals who require assistance with activities of daily living such as eating, bathing, dressing, and using the toilet. LTC includes nursing homes, assisted living facilities, adult daycare centers, personal care attendants, and homemaker services.

According to the Centers for Disease Control and Prevention, there are more than 50 million Americans currently living with some form of disability.10 This number will likely increase as baby boomers reach retirement age.

As a result, long term care expenses are expected to grow significantly. According to the AARP, the average cost of an LTC facility ranges between $5,500 and $12,000 per month.11

To lower your long term care costs, consider staying close to family members, living in a senior community, or signing up for Medicaid.

9. Home Maintenance

Home maintenance costs also rise as we get older. However, these costs aren’t always predictable. They may vary depending on whether you live in a home with central air conditioning, a pool, or a hot tub.

For example, homeowners with pools or hot tubs might spend more on heating and cooling costs during the summer months.

11. Dental Care

Dental care is another expense that tends to increase as we age. The good news is that dental insurance is typically inexpensive.

However, even though dental coverage is cheap, it doesn’t cover all types of procedures. For example, most dental policies only cover routine cleanings and checkups.

This means that you’ll still need to pay for fillings, crowns, root canals, and other major procedures yourself.

12. Vision Care

Vision care is another area where costs tend to skyrocket as we age. This is especially true if you wear contact lenses.

Contact lens prices range from about $20 to over $100 per month. If you decide to buy contacts, make sure they provide excellent vision without causing dry eyes.

13. Prescription Drugs

Prescription drugs are one of the biggest expenses retirees face. Unfortunately, prescription drug prices continue to go up every year.

In fact, according to the Kaiser Family Foundation, the average annual price of brand name prescription drugs increased by 10 percent between 2010 and 2015.12

Fortunately, Medicare Part B provides seniors with free preventive care including flu shots, blood pressure checks, and cholesterol screenings.

14. Medical Equipment

Medical equipment is another big expense that increases as we age. In addition to medical devices like wheelchairs, walkers, and oxygen tanks, many people also need hearing aids, dentures, and eyeglasses.

15. Estate Planning

Estate planning involves making decisions about how your assets will be distributed after you die. It includes things like wills, trusts, powers of attorney, and durable power of attorney.

Estate planning can be expensive, but it can also save your loved ones thousands of dollars in taxes and legal fees.

16. Traveling

Traveling is another major expense that most retirees face. Fortunately, there are ways to cut down on travel costs. For example, you can use public transportation instead of driving or fly when possible.

17. Funeral Costs

Funeral costs can be quite costly. Thankfully, there are ways to reduce funeral costs. For example, consider preplanning your own burial or cremation.

Final Thoughts On How To Calculate Retirement Living Expenses

It’s important to remember that retirement living expenses don’t have to break the bank. You just need to do some research before spending money on anything.

The best way to avoid unnecessary expenses is to plan ahead. Make sure you’re saving enough money each month so that you won’t have to worry about paying for basic necessities later in life.


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