Retirement planning is part savings, part guessing game. While many of your day-to-day expenses will remain the same, there are big-ticket categories that can take a large bite out of your savings. The more you can plan, the better prepared you’ll be to weather the costs.
Here are four expenses to keep in mind as you prepare for retirement:
The average 65-year-old retired couple will need about $300,000 in after-tax savings to handle health care costs in retirement, according to a 2021 report from Fidelity. Fidelity is a NerdWallet partner. “And that’s just for regular health care,” says Michelle Gessner, a certified financial planner in Houston. “That’s not even counting unexpected chronic illness care.”
Your specific costs will depend on where you live, how long you live and your overall health. Taking care of your health and adequately managing conditions like Type 2 diabetes can help keep costs lower.
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The other health care surprise is that Medicare premiums are higher if your income is above a certain level. For example, if you’re married filing jointly with a modified adjusted gross income over $182,000 in 2020, you’ll pay at least 40% more for your Medicare Part B monthly premiums. In 2022, the standard premium costs about $4,000 a year for a couple.
“It really creeps up,” says Laurie Burkhardt, a CFP in Boston. “And it’s easy, believe it or not, to get to that income level when you are at the age where you’re taking required distributions from your IRA.”
Seniors who live to 80 have about a 1-in-4 chance of needing long-term care. And it’s not cheap: An assisted living facility costs $4,500 a month, on average. And while a home health aide averages about $27 per hour, the costs add up.
“That’s pretty reasonable if you only need a few hours of care per week,” says Patti Black, a CFP in Birmingham, Alabama. “That math becomes unworkable, the more care you need.”
Certified financial planners can help clients project costs for a few years of long-term care to ensure their savings can handle it. “I talk with clients about whether long-term care insurance should be part of their financial plan to transfer some or all of this risk,” Black says.
The average senior on Medicare using dental services paid nearly $900 a year out of pocket, according to the Kaiser Family Foundation. And 1 in 5 Medicare beneficiaries spent more than $1,000.
Original Medicare doesn’t cover most …….