One common misconception about retirement is that your expenses will be considerably less once you’re no longer working. Not entirely true. Though some expenses may be reduced or even eliminated, other expenses will continue to increase over a long 20-to-30-year retirement. Here are the top three.
For Most Federal Retirees, Housing Is Your Biggest Monthly Expense
There’s a growing number of working Americans who will be carrying a mortgage into retirement. In fact, according to Lending Tree.com, “more than 10 million homeowners paying off their mortgages across the U.S. are 65 and older.” When estimating expenses for housing in retirement, you have to include your mortgage payments plus utilities, property tax, insurance, maintenance and repair costs. Add to this, as you age, you’ll likely need to pay others to help with maintenance and repairs you used to do yourself. As the largest expense for retirees, housing expenses can be as high as 35% of total annual expenditures.
These costs can be even higher if you find yourself dealing with unexpected, chronic illnesses that require non-medical, long-term care in a nursing home.
The Ever-Rising Cost Of Health Care & Prescriptions
As a federal employee, your Federal Employees Health Benefits Program (FEHB) coverage is excellent. If you choose to combine it with Medicare, you’ll likely be better off than a lot of people retiring from the private sector. However, you need to plan for inflation driving up the cost of your out-of-pocket expenses over a 30-year retirement.
These costs can be even higher if you find yourself dealing with unexpected, chronic illnesses that require non-medical, long-term care in a nursing home. According to LongTermCare.gov, someone turning 65 today has a near 70% chance of needing some type of long-term care services in the future. Unless you’ve purchased long-term care insurance, you’ll likely pay for these services out of pocket.
75% of Retirees Underestimate Income Taxes In Retirement
According to a 2022 survey conducted by the Senior Citizens League, approximately 75% of Americans approaching retirement seriously under-estimate the income taxes they’ll owe on their retirement income. You may be surprised to learn that as much as 90% of your FERS annuity (pension) is subject to income taxes. And when your combined income in a given year exceeds thresholds established by the IRS, 50% to 85% of your Social Security benefit is taxable as income. Add in taxes you’ll owe on 100% of distributions from your traditional TSP balance, and you may find yourself withdrawing more than you planned to pay Uncle Sam.
