Expenses That Tend to Increase During Retirement

With changes in lifestyle after you retire, you could be spending more money related to health, recreation, your home, and your hobbies after retirement. Your cost of living after retirement may increase as well.

Medical

As previously mentioned, your medical costs will increase post retirement, and you’ll need to budget for this expense accordingly. After you retire, you will likely be covered by Medicare. Medicare coverage provides hospital benefits at no cost and medical benefits at a cost of approximately $800 per year. Unfortunately, Medicare has very limited benefits, and many people choose to supplement Medicare with private insurance generically called MediGap, while others layer in long term care insurance for catastrophic illnesses that require very expensive care. You’ll need to quantify these costs in your state, but for bookmarking a budget number, you should assume $10,000 to cover your bases if you want complete coverage.

Be careful not to underestimate the cost of medical healthcare. Over the three year period of 2001–2003, healthcare costs rose by an estimated 20 percent each year. In addition, longer life expectancies have resulting in postretirement headaches for many people when it comes to medical expenses.

Recreation, Travel, and Entertainment

Most retirees grossly underestimate the additional costs associated with recreation, travel, and entertainment. When you retire, you do more, not less. You’ll eat out more, you’ll travel more, and you’ll buy the kids and grandkids more presents. These additional costs must be factored into your retirement budget. The best way to do that is to look at what you’ve spent in previous years and increase that number by 20 percent for the first five years you are in retirement. If you haven’t budgeted in the past, you need to sit down and think about the average number of times you eat out, the average number of vacations, and so on, and then you need to increase that number by 20 percent.

Home Improvements

While you’re working, there is little time to do anything other than basic maintenance around the house. After you retire, you are likely to face many critical decisions. One that often comes up is what do you plan to do with your home? Many people will sell their homes and move into a smaller home, a condo, or an apartment. But those who choose to remain in their residence, often redecorate and make the home more of a retirement residence. Any additional cost associated with those improvements will drive up the initial cost of retirement.

Hobbies

When people retire, they have the time to devote to their hobbies. This could result in added cost to the budget depending on the particular retirement activities hobby.