Ready to bust another retirement myth? Here’s one we hear often: “Your living expenses go down once you retire.”
Certainly, there are some expenses — like commuting, lunches out and clothes for work — that will likely drop. If you’ve planned well, you may even have your home paid off by the time you retire.
Here’s where the myth gets busted. Most experts agree that other expenses go up in retirement; sometimes significantly. Many new retirees, for instance, want to do all the things they couldn’t do during their working years. Think hobbies, travel, visiting the grandkids—most of those things cost money.
And don’t forget about health care. According to the Employee Benefit Research Institute, a typical 65-year-old couple would need $283,000 to have a 90% chance of paying for their health care costs during retirement. Those are out-of-pocket costs over and above what Medicare covers.*
What’s interesting is that expenses during retirement tend to change with age. At first, for example, entertainment and travel expenses are typically higher, and health care costs are manageable. As retirees age into their 70s and 80s, they’re not as active. Entertainment and travel expenses taper off. They may decide that they only need one car instead of two.
At the same time, however, health care costs go up. The increase could be significant, particularly if one or both partners need long-term care.
The moral of this busted myth, then, is to plan ahead and run the numbers. Don’t just assume you’ll need less income when you retire. If you assume wrong, you could run out of money too soon.
To get started, meet with a financial professional. Kevin Hansen will talk about that more in his next post.
See our previous Mythbusters posts on:
* EBRI Issue Brief #351, December 2010
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