Countless workers look forward to their retirement. However, this period is also an expensive prospect that catches senior citizens off guard. According to the U.S Bureau of Labor Statistics, the average senior spends about $46,000 a year during their retirement and with the average retirement length at 18 years, you can project that the typical retiree would need at least $828,000 to pay any bills they have once they leave the workforce.
The challenge with planning for your retirement is determining exactly what expenses you will have during that time. It is also important to consider that while the average retirement in the US is 18 years if you happen to retire early, that number could be 25-30 years or more. With that said, here are some of the most common retirement expenses that every senior citizen should plan for.
Housing might constitute as the single largest monthly expense both during your years in the workforce and in retirement. The U.S BLS reports that housing costs the average retiree $1,322 a month, but that number can double or even triple depending on where you live in the country. Luckily, there steps you can take to keep your housing costs low. The first step is to pay off your mortgage before retire which would eliminate that monthly cost. Your next step would be to downsize to a smaller home that would be easier to maintain. Keep in mind, that a 1,500 square-foot home would cost less in upkeep than a home whose size is 3,000 square feet. Another option available would be to rent an apartment rather than owning a home. Through renting, you can eliminate expenses associated with homeownership such as property taxes, maintenance, and repairs.
The average retiree spends close to $500 a month, but a multitude of medical issues can increase that monthly payment. Most seniors do not expect healthcare to be so expensive during retirement, and part of the reason for this is the fact that Medicare is not free and fails to cover many of the services seniors need. Most people enrolled with Medicare do not pay a premium for Medicare Part A which covers hospital stays, Parts B and D do charge a monthly premium to cover diagnostics and prescriptions respectively. Along with that premium, you must pay for deductibles and copays for any services you use. You also need to consider the services that Medicare does not pay for such dental, vision, and hearing aids.
Medical bills are inevitable for all seniors, but some of may be able to avoid the expense of long-term care which refers to the on-going care needed to allow patients to function. Experts estimate that 70% of seniors 65 and older will require some form of long-term care in their lifetime making it an expense you need to plan for. Genworth Financial’s 2017 Cost of Care Survey reported that the average assisted living facility in the US costs $3,750 per month, or $45,000 a year. Meanwhile, the average nursing home is $235 per day amounting to $85,775 per year for a shared home and $267 per day ($97,455 a year) for a private one. Obviously, when it comes to a nursing home, having a roommate will help you keep costs down, but you are better off investing in long-term care insurance during your 50s and 60s as it could help cover the costs you might face otherwise. This policy will come with a price, and the average long-term insurance policy annual premium costs about $3,490 which would amount to $87,250 over the course of 25 years.