When we talk to clients about retirement planning, we find that they tend to focus on savings. Naturally, everyone is going to do that, and for good reason. They need to feel assured that withdrawals from their Thrift Savings Plans, along with annuity payments and Social Security benefits, will adequately cover living expenses in retirement.
But there’s another side to that coin: Have you considered how you will spend your money in retirement? If you make one of these common mistakes, you could overshoot your budget in your retirement years.
Keeping the house. The upkeep, repairs, and taxes on a large house can become a financial burden, even for those who have already paid off the mortgage. Do you really need that large, expensive home? Or would downsizing to something more affordable be a better choice for your budget in retirement?
Out-of-pocket medical expenses. It has been estimated that a couple retiring today will spend about $275,000 on medical expenses over the course of their retirement years (Fidelity, 2017). Before you retire, we should discuss different options for reducing this risk.
Long-term nursing care. While only a small minority of retirees have planned for the expense, one in seven will need long-term nursing care at some point. This is clearly too big of a risk to ignore, so let’s plan for that now rather than later.
Supporting adult children. Unless there is some compelling reason that your children can’t support themselves, nudge them toward independence before you retire. It’s okay to focus on your own financial needs at this point in your life.
Unexpected expenses. Home and car repairs, travel for family emergencies, and life’s other surprises are unlikely to stop just because your career does. Plan for unexpected expenses in advance, by establishing a savings account, so that you don’t need to disrupt your TSP withdrawal schedule.
Making assumptions. Many retirees assume that their expenses will decrease in retirement, but that isn’t always the case. Sometimes we see that budgets simply rearrange themselves. The daily commute is replaced with travel, work lunches are replaced with hobbies, and so on. Make sure you’ve been honest with yourself about your expected budget, and plan for a little wiggle room in case plans change.
These are just some of the more common, and larger, financial mistakes that retirees sometimes make. Keep in mind that retirement planning should continue even after retirement, so continue to meet with us so that we can help you adjust your budget even when life throws you curveballs.
