Many retirees underestimate how much they will spend on healthcare when they retire. Not only do the face the regular inflation of healthcare costs, which is much higher than overall inflation, but as people age, they tend to need more health care. They may require more prescriptions and deal with health complications. This all adds up to spending that they may not have adequately prepared for. What might help fight healthcare costs is retiring to a city with lower living costs or that is more suited for retired living, as that will lower the overall money you pay, and may help you with any medical bills. But be sure that the cities you consider moving to are still suited to the type of lifestyle you’re seeking.
It's a common misconception that most people retire debt-free. That's far from the truth. Many retirees still have years to pay on their mortgage, and they may have other debts, such as credit card debt. Reduced income in retirement may not be enough to continue to pay that debt at the same level as when the retirees were working.
Most retirees rely on the investments they have made to generate income in their retirement to supplement Social Security and a pension if they have one. Bad investments can be a drag on those plans because they may not generate enough income or they may even incur losses. Timeshares are an example of a bad investment that generates no return and can drain limited resources though annual fees.
Many people assume that they will significantly cut down on their household spending when they retire, but that may not be the case, especially in early years. While they are still healthy and able, many retirees want to travel and do other activities, such as going to concerts and sporting events, which cost a lot of money. Retirees may also eat out more. It's important to budget your retirement years assuming that your household spending will stay the same, at least during the first few years.
Many retirees find themselves having to financially support adult children or aging parents with general living expenses or long-term assisted living expenses. This can cause a significant financial drag and cause people to spend down their retirement nest egg significantly. In some cases, people may be forced to go back to work at least part-time. Beyond providing care, the unexpected death of a loved one can also carry a financial burden. These are expenses to keep in mind as you move into retirement.
When it comes to financial challenges in retirement, you need to plan accordingly. When estimating spending, assume it will be higher than you think. You also should pay down debt as much as possible and dispose of bad investments before entering retirement.
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