Whether you’ve been planning your retirement for some time or are just starting to get a jump on your post-career savings, you probably know you’re going to have to budget for certain things – like rent or mortgage payments, food, medical expenses, and other regular bills and needs. There are a few things you might not have thought of, though, that should still be built into your retirement budget.
Nobody plans on getting the type of illness that results in the need for long-term care, which is why the expense often hits hard and without warning. Planning early to need long-term care at some point will give you more control over the situation, letting you decide if you would rather have in-home care or move into an assisted living facility, and giving you the power to choose from whom you want to receive care. Hopefully, it’s an expense you never need. It’s better to have the cash put aside though, and not need it, than to need it and not have it.
You may be planning to travel the world during retirement, but don’t forget the one-time occasions that will require some travel, too. Things like a grandchild’s graduation, a class reunion, a friend’s birthday, weddings, or other occasion-based travel expenses are going to come up, and having a bit in reserve for special travel is going to help make sure you get to all the ones that are important to you.
Whether you rent or own, you know you’re going to have to pay for your housing, but don’t forget that your rent or mortgage isn’t the only expense that comes with your home. An appliance might go bad, plumbing might need work, a flood could do some damage – the same unexpected home circumstances that have been there your whole life have the same chance of occurring in retirement, but now you can’t simply work some overtime to cover the cost of that new dishwasher. Planning for at least some home maintenance costs could help offset if not entirely cover the burden.
If you’re withdrawing from a traditional IRA or 401(k), don’t forget that there will be taxes each time you withdraw. If, for example, you’re withdrawing $4,000 a month, after taxes you could be left with $3,000 or less to cover your living expenses. Depending on the type of account you have, you may be taxed more or less, but that’s something you can’t get around, and it’s an important expense to plan for now so that you have a realistic idea of what you’ll be withdrawing versus what will actually hit your bank account.
Another one of those things that you can’t predict but that will inevitably happen is inflation, which has the power to substantially lower your purchasing power in retirement. The social, economic, and political circumstances surrounding inflation are so hard to predict that it’s not worth speculating about exact rates and developing precise plans, but there are ways you can help mitigate inflation risk as you’re working out your retirement.