Before you start living on a fixed income in retirement, it’s important to develop a budget that includes five of the top expenses many retirees tend to overlook.
1. Housing
Whether you plan to downsize or age in place, for most of your retirement housing will be your biggest expense. Even if you’re able to pay off your mortgage, you still have to adjust your budget for those expenses that are most likely to rise over the years: utilities, property taxes, insurance plus maintenance and upgrades.
2. Income Taxes
According to a 2022 survey conducted by the Senior Citizens League, approximately 75% of workers approaching retirement under-estimate the taxes they’ll owe on their retirement income. In fact, newly retired federal workers are often shocked to find as much as 90% of their FERS/CSRS annuity is subject to income taxes. Add to this, 100% of your TSP distributions are taxable and, depending on your combined income in a given year, up to 85% of your Social Security may be taxable.
3. Emergencies
Putting money aside for emergencies helps you avoid tapping into your TSP nest egg for things like car or repairs. If you tap into your TSP too quickly, all the hard work you put into planning your drawdown strategy will be for nothing
“Long Term Care is custodial assistance with day-to-day activities you’re unable to do on your own: dressing, bathing, feeding yourself, etc.”
4. Long-Term Care In A Nursing Facility Or At Home
According to the U.S. Department of Health and Human Service, close to 70% of today’s 65- year-olds will require some kind of Long-Term Care (LTC) in a facility for an average of about three years.
Long Term Care is custodial assistance with day-to-day activities you’re unable to do on your own: dressing, bathing, feeding yourself, etc. The cost of this type of non-medical care is rapidly rising and can wipe out your nest egg if you overlook including it in your budget.
You can pay for it out of pocket if and when you need it. Or, you can purchase a policy from the government’s FLTCIP insurance which is a John Hancock Life & Health Insurance Company product. Then again, you may want to look at LTC policies in the private insurance industry.
5. Losing A Spouse
No one wants think about losing a spouse after a lifetime together. Unfortunately, in addition to preparing for the heartbreak, you need to prepare for it financially. Why? When a spouse passes, reduced survivor benefits (FERS/CSRS and Social Security) can reduce your income by as much as 50%. Life insurance, and other strategies, can help fill the gap.
