“Why Your Retirement Expenses Might Increase and How to Handle Them”

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Managing Retirement Expenses: What to Expect and How to Prepare

Retirement brings significant lifestyle changes, and while some living expenses may decrease, others can rise. At O1ne Mortgage, we understand the importance of planning for these changes. Here are five reasons your expenses might increase in retirement, along with tips to help manage your costs. For any mortgage service needs, call us at 213-732-3074.

1. Health Care Spending Shifts

Health care costs often shift during retirement. Transitioning from employer-paid benefits to Medicare introduces new premiums, deductibles, and copays. Additionally, as people age, they typically require more care, including long-term care, dental care, prescription drugs, vision care, and more.

A Fidelity study estimates that a single person age 65 in 2023 may need $157,500 saved for health care expenses in retirement. It’s crucial to keep money in reserve for health care costs in your later years.

How to Save on Health Care in Retirement

• Carefully weigh the costs and benefits of your health coverage options, including traditional Medicare, Medicare Advantage plans, and Medicaid.
• Open and fund a health savings account (HSA) before retirement to benefit from tax-deductible contributions and tax-free withdrawals for qualified health expenses.
• Take advantage of catch-up contributions to your 401(k) and IRA once you reach age 50.

2. Housing Costs Can Increase With Age

Staying in your home may not always be the stable, affordable option you expect. Home repairs and maintenance can become more costly, especially if you need to hire help for tasks you once did yourself. Additionally, an aging home may require more frequent repairs.

Experian data shows that the average baby boomer carried a $191,557 mortgage in 2023. Renting in retirement may not save money in the long term, as rents typically increase with the cost of living.

How to Save on Housing in Retirement

• Plan for your mortgage payoff date and consider refinancing to pay off your mortgage faster or reduce monthly payments.
• Consider downsizing to a smaller, newer home to reduce or eliminate your mortgage and lower maintenance costs.
• Make major repairs or upgrades before retiring to qualify for home equity loans or lines of credit more easily.
• Consider a reverse mortgage if you own your home free and clear to boost your monthly retirement income.

3. You May Still Carry Consumer Debt

Consumer debt is common among retirees. High interest rates on revolving credit can turn modest balances into significant debt, making it challenging to manage on a fixed income.

How to Save on Consumer Debt in Retirement

• Identify the reasons for accumulating debt and adjust your spending or living expenses accordingly.
• Budget for major expenses and have a plan for paying them off.
• Maintain a good credit score to access lower interest rates and favorable loan terms.
• Pay off or refinance debt before retiring, and if already retired, work on a plan to pay it off.

4. You Want to Enjoy Traveling

Traveling is one of the joys of retirement, but without careful planning, travel expenses can quickly deplete your savings.

How to Save on Travel in Retirement

• Designate a portion of your income or savings for travel to stay on budget.
• Use travel rewards cards to earn bonus miles and save on foreign transaction fees.
• Travel during non-peak times and consider less popular airports or driving instead of flying.
• Explore money-saving opportunities like teaching English abroad, house sitting, or home swapping.

5. Taxes Are Forever

Even in retirement, income taxes remain a reality. Tax rates don’t change with age, but your income sources and deductions might.

How to Save on Taxes in Retirement

• Diversify your retirement portfolio with Roth accounts to minimize future tax burdens.
• Consult a tax advisor or retirement financial planner to structure distributions and plan for quarterly tax estimates.

Frequently Asked Questions

Do Expenses Decrease in Retirement?

Some expenses may decrease, but others, like health care and housing, can increase.

How Do You Estimate Monthly Retirement Expenses?

Consider your current expenses and adjust for changes in health care, housing, and lifestyle.

How Can You Reduce Your Retirement Expenses?

Plan for health care costs, manage housing expenses, control consumer debt, budget for travel, and plan for taxes.

The Bottom Line

While some expenses may increase during retirement, others may decrease. Building flexibility into your retirement plans can help you stay on track despite inflation, spending, and unexpected costs. Maintaining good credit can ensure you have financing options when needed. For any mortgage service needs, call O1ne Mortgage at 213-732-3074.

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