While retirement is when most Americans anticipate having a little more time to relax, they will still have expenses to pay for, and their retirement savings must account for this. Not only do retirees still have to manage their mortgage, utility and grocery costs, but they also have to attend to unexpected expenses.
According to a recent Bankrate survey, these unforeseen costs are where many Americans fall short. The data showed the biggest concern among older individuals in particular was medical expenses, as 20 percent of respondents 50 or older said these costs eclipse the necessities of food and shelter.
Getting a scope of medical costs in retirement
Health care costs are sometimes a forgotten consideration of retirement planning. Some individuals believe the can solely rely on Medicare coverage once they retire, but they may not understand what the plans cover or how to account for out-of-pocket expenses such as cost sharing.
Data from the Henry J. Kaiser Foundation showed these expenses can be high even when accounting for government-sponsored coverage. Additionally, these costs go up as people age. The average overall Medicare spending for 70-year-old individuals in 2011 was $7,566. That figure shot up to $11,618 for 80-year-olds.
“Medical costs are just a small part of expenses in retirement.”
While those figures include both covered and out-out-pocket costs, the numbers – along with the Bankrate survey responses – indicate health care is still a major expense to watch in retirement.
Accounting for expenses in retirement
Although medical costs were the expense highlighted most often by older individuals in the Bankrate survey, they are just a small part of what retirees must account for when planning for retirement. An infographic from Fidelity showed the scope of budgeting needs during this time, indicating how different variables impact costs.
For health care specifically, big disparities come into play when looking at men versus women as well as individuals with average life expectancy versus individuals with above-average life expectancy. In 2014, 65-year-old women with average life expectancy spent $20,000 more for health care costs than their male counterparts. When looking at above-average life expectancy, that difference is $170,000 to $185,000 for men and women, respectively.
One upside to the Fidelity data is that expenses for most other needs go down once retirees are older than 70. This includes mortgage, vehicle, recreation, grocery and insurance costs across various income levels. Monthly health care expenses can drop in some cases, but the data showed the change wasn’t as drastic as other expenses.
It’s not all bad news
This information may be a wakeup call for some individuals who haven’t adequately accounted for health care expenses in retirement. However, for most Americans, this may just be a reminder to keep up the good work, as only 18 percent of Bankrate’s survey respondents said they didn’t have a budget.
National Foundation for Credit Counseling spokeswoman Gail Cunningham told Bankrate budgets are the best way to ensure appropriate spending. With that said, Americans should be sure to account for unforeseen health care costs and other unexpected expenses as they plan their finances.