The Five Biggest Expenses in Retirement

When planning for retirement, it’s common to anticipate increased spending in areas like travel and entertainment. However, at Willamette Wealth Partners, we’ve observed that retirement spending predominantly falls into five major categories, with travel being just one of them.

1. Healthcare Costs

Healthcare is a significant expense for retirees, especially those retiring before According to the Wall Street Journal, “leaving work four years before starting Medicare can drain $100,000 or more from retirement savings.” Even post-65, Medicare does not fully alleviate the financial burden. On average, Medicare only covers about 80% of approved expenses, after the deductible has been met. Preparing for these expenses is crucial, as out-of-pocket costs for Medicare Part B and D premiums, along with dental, vision, and long-term care (which are NOT covered), can significantly impact savings.

Strategies for Managing Healthcare Costs:

• Before retirement, opt for a high-deductible health plan and maximize contributions to a Health Savings Account (HSA), which gives savers a tax deduction upon contributing to the account, defers taxes on any earnings in the account, and allows for tax-free withdrawals to cover medical
• In retirement, review your Medicare coverage and any gaps that may be filled with the right plans.

2. Taxes

Contrary to common belief, taxes can remain a considerable expense in Large pre-tax retirement accounts like 401(k)s and IRAs can lead to high tax liabilities. Proactive tax planning, including diversification* between pre-tax and Roth contributions, can mitigate future tax burdens.

Strategies for Tax Planning:

• Balance contributions between pre-tax and Roth
• Utilize Roth conversions to lower lifetime tax
• Employ strategic withdrawal planning to minimize tax

3. Travel

Travel often features prominently in retirement plans. Costs can vary widely, so planning and saving for travel expenses are essential.

Planning for Travel Expenses:

• Outline desired travel destinations and estimate costs in today’s
• Calculate yearly travel budgets, accounting for inflation, to determine necessary savings.

4. Home Maintenance

Home maintenance can become a major expense, especially as deferred maintenance comes due in Planning for both regular upkeep and potential renovations is vital to avoid financial strain.

5. Supporting Children and Grandchildren

For many, retirement spending includes financial support for children or grandchildren, whether for education, gifts, or shared

Planning for Family Support:

• Assess the financial impact of supporting family members to ensure it doesn’t compromise retirement security.

At Willamette Wealth Partners, we employ advanced planning tools to help clients prepare for these expenses, ensuring a financially secure and fulfilling retirement. If you think you might have questions about these retirement expenses for yourself and your own family. We’d love to meet.

Contact us today to explore how we can support you in achieving a retirement filled with joy, security, and fulfillment. Together, let’s turn your retirement dreams into reality.

By Adam Coughlin written in collaboration with Lexicon Advisor Marketing

Disclaimer:

*There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified Diversification does not protect against market risk.

*The Roth IRA offers tax deferral on any earnings in the Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.