Retirement is a much-talked about concept, but few seem to consider the actual expenses involved in retiring from the workforce. To be sure, everyone is advised or admonished to save money for retirement expenses, such as by starting an IRA, a retirement-focused brokerage account, and other investment vehicles. No matter the plan, however, the fact remains that the economic climate when you retire might be vastly different than today. Plus there are some things you can never truly plan for. Consider these items:
- Longer Lifespan
Thirty years ago, the life expectancy rate on average was 72.6 years. Today, that figure has jumped to 77.9 years, and many people are living well into their eighties, nineties, and even crossing the border into their one hundreds. The normal retirement age, however, is still 65, despite the tremendous gains in life expectancy. What this translates to in practical terms is that many people will live longer in retirement than their actual working lives.
- Adult Children Moving Back Home
The downturn of 2008 has likely taken a bite out of your investment portfolio, but it has probably affected your children even worse. In 2009, 13% of parents surveyed by the Pew Research Center said that their children had returned home in the last year. In February of 2010, 3.6 million people in the 25 to 34 age range were unemployed. This is about 10.6% of the workforce, according to the Bureau of Labor Statistics. Setting aside the emotional strain on all involved in this unfortunate position, think about the effect this would have on your finances. Even if your children are grown, you’ll spend extra money on food, utilities, etc. while they are living with you. In severe cases, you could end up having to take on some of your child’s debt. Or, if your situation is more fortunate, it could just mean supplying them with some extra spending money to ease the burden.
- Taxes and Inflation
The current opinion is that inflation will become a huge problem once the economy fully recovers. There are no signs to substantiate that forecast yet, and in fact there are signs of deflation. All the same, you would be well-advised to prepare for higher inflation in the future. The stimulus plans and bailouts that President Obama signed during 2009 will be paid for by the taxpayer. That means taxes will go up sooner or later. Are you prepared to handle the extra tax burden? If you work even part-time during your retirement, up to 85% of your benefits can be taxed by the government.
- Health Care
Health costs are expected to increase once the kinks of the new “lower-cost” healthcare bill are worked out. Nursing home costs, medical expenses, doctor’s fees, and other costs will likely increase. Is your financial situation okay with this?
- Repairing Your Home
Regrettably, home and car repair are things we can only prepare for but not predict. This is an extra expense that might not be accounted for in your finances.