Retirement planning would be a lot easier if we could count
on our annual expenses to remain the same. But that's not how it works. Our
lifestyle changes a lot as we transition into retirement and it continues to
change as we age and life slows down. Anticipating these shifts is key to
While everyone's retirement lifestyle looks a little
different, here are three common changes most people can expect after they
leave the workforce.
1. Your budget might be tighter
Unless you plan to work part time, you have to get
comfortable with the idea that all the money you have to live on is what's in
your bank and retirement accounts. This can make unplanned expenses more
difficult to handle.
You can't spontaneously decide to take a round-the-world
vacation if you hadn't planned for it before retirement. And even smaller
things, like splurging on a new hobby, can drain your limited funds more
quickly than you expected.
That's why it's important to be as meticulous in your
retirement planning as you can be. Try to anticipate all potential costs that
could arise, and leave a little cushion as well for emergencies. It's up to you
to decide what you feel comfortable with, but stashing away a year or two of
living expenses for unexpected costs is probably a good idea.
2. Some of your expenses might shrink or disappear
Surviving on less money than you're used to might not be as
bad as you think because some of your expenses will go down or disappear in
retirement. You won't have to save for retirement anymore once you're already
there, and you probably won't have to pay for child care.
You might also save on commuting costs and business
clothing. Not to mention, you might be able to score some senior discounts on
everyday expenses, like insurance or dining out. All of this can help stretch
When thinking about your retirement budget, it might not be
possible to anticipate every savings, just like you can't anticipate every
cost. But consider the major shifts to your budget, like no more child care,
and don't forget to account for them when evaluating how much you'll spend
3. Other expenses might rise
It's normal to see other expenses, like healthcare, rise as
we age. Older adults tend to experience more health issues than younger ones,
and though most of them have Medicare, this still has premiums, deductibles,
and co-pays. There's also a lot that Medicare doesn't cover, like dental care
and hearing aids.
Seniors must plan for these out-of-pocket costs, either by
setting aside money in a retirement or health savings account (HSA) or
purchasing supplemental insurance coverage to pay for what Medicare doesn't.
Supplemental insurance will also bring extra costs, but they'll be more
predictable than paying for everything Medicare doesn't cover out of your own
On a lighter note, you might also be spending more money on
travel or hobbies compared to what you're spending now. Think about what you'd
like to do in retirement and any associated costs. Then, make sure you're
including these costs in your retirement plan.
Once you have a general idea of how your spending will shift
over time, you should be able to anticipate how much you need to save. If your
goals or retirement timeline ever shift, you may have to repeat this process.
It's best to do this as soon as you know something's changed. Putting it off
increases the likelihood that you won't do it at all, and then you could run
short in retirement.
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