One common misconception about retirement is that it's a much less expensive period of life. But depending on your circumstances, you may find that a lot of your living costs stay the same once your career comes to an end.
In fact, a number of common living expenses tend to rise during retirement. Here are three to put on your radar.
If you're covered by a lousy health insurance plan during your working years, then Medicare might seem like a bargain. But if you have decent coverage throughout your career, then you may be in for a financial shock once you retire and move over to Medicare.
Not only are there are a host of common services, like dental care, that Medicare won't pay for, but you'll also generally need to pay for supplemental insurance on top of your Part B and Part D premiums. And don't forget about copays and deductibles — those will eat into your budget, too.
All told, Fidelity estimates that the average 65-year-old male-female couple exiting the workforce this year will spend $300,000 on healthcare throughout retirement. And that may be a lot more than you bargained for.
Working is a very cost-effective way to occupy your time. But once you retire, you'll have many hours to fill, and keeping yourself busy could get expensive. In fact, you may end up spending a lot more money on entertainment once you no longer have a job that takes up 40 hours of your week or more.
3. Property taxes
Many seniors enter retirement with their homes paid off. But while you may not have a mortgage to deal with, property taxes never go away. And unfortunately, they have a tendency to rise over time.
While it's possible to fight a property tax hike, usually, those come in conjunction with rising home values. And since property values have the potential to increase in time, taxes commonly follow suit.
How to prepare for rising expenses
Try as you may to minimize your spending in retirement, certain costs might climb that are beyond your control. A good bet, therefore, is to do your best to save as much money as possible in a 401(k) or IRA. If you start putting in an extra $500 a month right now and you're 10 years away from retirement, you'll end up with an additional $79,000 if your investments generate a relatively conservative 6% average annual return.
On top of padding your retirement savings, it also pays to see if you qualify to contribute to a health savings account, or HSA, which will let you set money aside for future healthcare expenses. Obviously that won't help you cover the cost of staying busy or property taxes, but an HSA could serve as a dedicated source of medical funds when you need them.
Finally, you might consider moving to a state where owning a home as a senior is more affordable. In some parts of the country, property tax rates are sky-high, so even if you own your home outright, there's no getting around high housing costs. If you relocate to someplace with lower property taxes, you may find that you're able to stretch your retirement income even further.
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