Let’s face it, the “Golden Years” cost money. In planning for retirement, you need to take a realistic look at debt and obligations, as well as expenses for this new phase of life.

Assessing your expected costs of retirement, with objective insights from a financial advisor, will help you realize your retirement plans and embrace the lifestyle you choose. This evaluation will enable you to adjust your expenses as needed, and develop a budget to ease the transition.

If you approach retirement still owing money, you are not alone. The percentage of American families with heads of household ages 55 or older that had debt that increased from 63.4% in 2010 to 65.4% in 2013. Furthermore, the percentage of these families with debt payments greater than 40% of income — a traditional threshold measure of debt load trouble — increased in 2013 to 9.2% from 8.5% in 2010.1

The problem is that continuing to pay off debt is more difficult on a fixed income. When expenses spike, as in a medical emergency, retirees can find themselves in a financial bind. Among people over the age of 65 years, approximately seven percent end up filing for bankruptcy — many citing credit card debt and health issues. To avoid a financial crisis, it’s best to prepare now by getting a realistic picture.

A starting point is to list all of your financial obligations. Consider all kinds of debt and regular commitments including amounts, payment schedules and the duration of the debt.

Non-mortgage debt.

If your mortgage interest rate is three … four … or even five percent, it might be advisable to not pay off the loan by a certain date or with extra payments. Given the range of mortgage interest rates, you have the potential for higher returns with your investments. However, non-mortgage debt can add up to substantial obligations. As you approach retirement, you need to make a complete list of these other debt. Examples include:

  • Credit card debt as well as balances you carry over from one month to the next.
  • Auto and other installment loans, such as for appliances or home improvements.
  • Loans you have co-signed for children or others and could be called upon to pay.
  • Business or farm loans you have taken out personally or co-signed.

You will avoid some stress if you pay off non-mortgage debt before retirement, beginning with the most expensive debt in terms of interest rates.

Regular expenses.

Ordinary living expenses will continue after retirement but most likely will decline. One back-of-the-envelope formula calls for reducing expenses by 20% post-retirement. However, depending on the individual, expenses may or may not be lower after retirement.

You can evaluate your expected costs by listing all of your actual living expenses now — housing costs, utilities, groceries, transportation, taxes and insurance, entertainment — with the changes you are confident you can make under a retirement budget.

It is worth noting that many retirees take on living expenses of others in the family — children, grandchildren or aging parents — and these costs can add to your own obligations.

Also take into account that the lifestyle changes many people associate with retirement — devoting more time to hobbies like golf or fishing, entertaining friends and family, moving to a resort-like community, dining out and traveling the world — all come with price tags.

Health care.

While some expenses typically shrink in retirement, health care costs are likely to increase. Medical expenses will vary widely with individual health and insurance coverage, but information to think about include:

To have a 90% chance of having enough savings to cover health care costs in retirement, a man would need $211,000 and a woman would need $242,000 if the benefit is through a former employer and not subsidized.2

As you gather information to assemble a retirement plan, our experienced advisors can offer the objectivity, knowledge of various scenarios and specialized data to help you assess the obligations and costs you will face during your Golden Years.

What to do next.

  • Make a list of your financial obligations.
  • Compare your debt payoff dates with your target retirement date.
  • Engage an experienced investment professional to offer objective direction in addressing your financial obligations and planning for retirement.


1 https://www.ebri.org/pdf/notespdf/ebri_notes.jan15.debt.pdf
2 https://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=4711