When we think about our golden years you might think about retirement, slowing down a little bit, and maybe even doing some traveling. In fact, I’ve often wondered what I would like to do when I retire and endless possibilities come to mind.
However in this ever changing world it would be great to believe that at age 65 we would be able to retire and start living these great dreams, but this is only when reality will set in and those golden years may not seem so golden anymore.
In this article I’m going to cover 5 retirement costs you may have not considered that could end up spoiling your lifelong dreams and stop you from even being able to have a retirement at all. They are critical to think about when planning for retirement.
The first cost to consider is insurance. When it comes down to it insurance costs are rising at alarming rates. In fact, my health insurance when up over 50% in the last two years alone and I’m only 32 with 3 kids. On top of that I don’t smoke, I eat healthy, and I even qualified for the best possible rates.
However, it doesn’t just affect health insurance it also affects other types of insurance products such as life insurance. In a recent study I did I compared the prices of life insurance for a 20 year old healthy person to a 60 year old healthy person and the cost difference was huge.
Life insurance costs for a 20 year old male were around $14 a month for a $100,000 a month policy. For a 60 year old the price went up over a $100 a month.
The next problem that you will face as you get older years is taxes. The reason taxes will go up in your later years is because you won’t get as many of the deductions that you did in your younger years. Here are just a few to consider.
- Child deduction – When you’re younger and have kids you will receive a $1000 tax deduction for each kid you have. When you get older those reductions will go away when your kids grow up and move out.
- Mortgage Deduction – Another deduction you will get is the ability to deduct the interest off your mortgage. In most cases by the time you reach retirement age your mortgage will be paid off and you will no longer be able to claim this deduction.
- IRA & 401k Deductions - Finally, another deduction to consider is the money you contribute towards your IRA or 401k. Every time you contribute to your IRA or 401k it’s deducted from your taxes but when you retire it will be one less deduction for you.
The next way seniors will be affected by higher cost is inflation. Inflation is the rising cost of goods and services over time, and these costs will continue to go up. In fact, what cost a dollar in 1980, the year I was born, now costs $2.79 according to the Bureau of Labor Statistics.
That means in the last 32 years inflation has risen by 36%. This means that if this trend were to continue $2.79 would grow into $3.80 to as much as $4.50. So what cost a dollar in 1980 will now cost $4.50 sixty years later.
Fourth, with the cost of goods and services going up so will the cost of retirement. What somebody could retire on in today’s dollars may not be possible with the same amount of money 30 years from now.
For example, if you decided that $50,000 dollars was enough to retire on in today’s dollars, you would actually need around $121,000 a year in 30 years from now in order to have the same spending power all because of the cost of things going up over time.
Finally, the last thing that will increase the most is the cost of what you spend on healthcare. As you get older you will be more susceptible to getting sick, and as a result you will have more medical bills to deal with.
One example of this I can give is my own parents. Since they’ve retired they’ve dealt with everything from high cholesterol issues to back surgery. The truth is the older you get the more health issues you will be prone to.
How To Minimize These Retirement Costs
When it comes to all of the above cost there are ways to avoid them and protect yourself from them. So here is a simple list of things I’ve come up with that you can implement right now.
- Become A Better Saver. The first thing you should do is start saving extra now. For example, it’s cheaper to start saving for retirement at younger age than to wait till your 50. On top of that the earlier you can start by putting some extra money back the better it will protect yourself from unexpected expenses.
- Become A Better Planner. Another thing to consider is pre-planning a lot of things now to avoid dealing with them down the road. One example of this is life insurance as I proved this earlier that it’s much cheaper to buy a policy now rather than later. Otherwise you may have to end up buying a guaranteed acceptance life insurance plan which could be much more expensive.
- Take Care Of Yourself Now. Finally, the last thing you can to do help you save more down the road is exercise and eat healthy. When it comes to healthcare nothing saves you more than exercising in your younger years than waiting until you 50’s or 60’s. On top of that you will be less likely to get sick, and your body will be able to deal with physical issues such as back pain a lot better.
So what do you think about these retirement costs to consider when planning for retirement and the tips to avoid them?