Your Biggest Expense in Retirement?

by Thomas Mengel

The other day, a business associate quizzed me on the biggest financial challenge in retirement. “Tom,” he said, “you’re always saying that saving enough isn’t the most difficult challenge when it comes to retirement. So what is?”

“Easy,” I said. “It’s expense control.”

He gave me a quizzical look. “Expense control? I was under the impression that by the time we retire, we will be spending less, not more.”

In some way, he was right. The usual expenses often are lower in retirement. Home and vehicles are generally paid for. School expenses have been covered. Bills are typically under control. However, what many people don’t understand is the fact that they now have a “seven-day weekend.”

Think about where and when you spend money today. We really don’t spend a lot during the week while we are working … but we make up for it on the weekend by having fun. The weekend is when we are most likely to travel, eat out and shop.

In short, it costs more to “play” than it does to “work.” In retirement, that recreational time expands – and so do its associated costs.

There are other expenses that tend to increase during retirement as well:

• Your home may be paid for, but it will likely need maintenance as it gets older.

• The same goes for vehicles: Even if you aren’t replacing your vehicles as often, they still require costly maintenance as they age.

• Many household repairs you used to do yourself may now require hiring outside contractors.

• New hobbies can create additional expenses that may not be part of your planned budget.

• If one of your retirement objectives is to travel, those expenses can raise costs dramatically.

Health care costs are an issue too; for many people, this is the single biggest expense in retirement. While it is naturally quite difficult to predict what specific health conditions you will have in the future, there are tools available that allow you to take a health profile and project future costs by making a few assumptions.  

The least-often-expected expense is that of family. Whether it is your children, a sibling or your parents, it is very difficult to say no to a family member in need. It may also be difficult to grasp the long-term ramifications of these types of decisions. Being able to measure the effect of a gift (or other significant expense) by projecting the impact on your retirement plan is an absolute must.

Using a financial tool to measure these types of decisions, and understand what your lifestyle is today and will be in the future, is critical in this process. The best plans project 100% (or potentially more) of your current expenses for your retirement needs.

And of course, as with most every other part of your financial plan, it doesn’t hurt to be conservative with your estimates.  I’ve never had a client say: “It’s a shame I saved too much for my retirement! I don’t know what to do with my extra income!”

Thomas Mengel is a founding partner of MSMF, where he advises clients on matters including portfolio management, family wealth planning and business succession. Tom can be reached at his office at 12213 Big Bend Road, Kirkwood, MO 62122 and by phone at 314-677-2550.
 
Securities offered through Cetera Financial Specialists LLC (doing insurance business in CA and CFGFS Insurance Agency), member FINRA/SIPC. Advisory services offered through Cetera Investment Advisors, LLC. Cetera entities are under separate ownership from any other named entity.