One of the most common mistakes when planning for retirement is not knowing how much money you will need when you retire. A large part of the problem is caused by expenses that we consider extraordinary, but which can actually be foreseen.
And what are these additional expenses when you retire? There are several categories: on the one hand, there are those related to your lifestyle; on the other, those of the family; and, finally, those that have to do with your health.
Additional expenses when you retire depending on your lifestyle
Eating out, commuting to work, buying clothes for work… There are a series of expenses that will disappear when you retire. However, there are new ones that you will have to address and, if you don’t think them through, it’s easy to:
- Focus only on the savings you will make when you stop work.
- Underestimate the cost of your new additional expenses as a retiree.
Stopping work means a radical change in your lifestyle and the use of your time. It’s not only about what you can do with those 8-10 hours a day you now have at your disposal, but also about all the freedom and flexibility that comes with not being tied to a schedule, for instance.
In the first case, filling 8 hours of your life with TV series may be fine when you need to switch off from work, but this is probably not what you have in mind for the rest of your life. The most common thing is to fill that time with a mix of household chores (shopping more calmly or going to the market, for example) and leisure activities (sports, walks, hobbies, etc.).
In the second case, this freedom can and usually does translate into trips, long and short, at home and abroad. Many people have places they have been waiting to visit for a long time or seasons when they prefer to escape from the cold of their city to look for the sun on the coast.
All of these are additional expenses you should think about when you retire and they will depend on the activities you do. Playing more golf or taking paddle tennis lessons is not the same as going for long walks or spending more time with the grandchildren.
Each of these activities has an additional cost that it is advisable to anticipate, even the grandchildren, as we will see below.
The best example, without a doubt, is travel, which can take many euros out of your budget, if you don’t plan for it, and even if you do.
And it also depends on your family
In economic terms, focusing on your children is one of the most common situations after the age of 50, and even more so if there are grandchildren in the equation.
It’s not just a matter of figuring out your children’s finances or thinking that you’re going to have to help them with money. It is important to know what your personal values are in this regard, as well as what kind of grandparent you want to be.
In other words, know how, in what way and to what extent you will help your children financially, if they need it. And the same applies to your grandchildren. Are you going to want to take them on vacation? Are you a soccer fan and want to take them to a match? Let them spend the night at your house? Buy them the treats they ask for? All of these are added expenses that, again, should be kept in mind.
Health, more important than we appreciate
This is, without a doubt, pivotal when planning your retirement. It is very common to think about our retirement and plan it starting from an age of around 65.
The reality is that you will not stop getting older no matter how long you are retired and your health at 65 will hardly be the same as it was at 75, for example. It is not about being a prophet of doom, but about having a plan that lets you deal with this physical decline in the best possible way.
On the one hand are medicines, which in Spain are largely financed by the public health system. When you are retired, the State finances a percentage of the cost of medication, depending on your income.
Moreover, in the case of medications that need to be taken permanently, you only have to pay 10% of their cost.
On the other hand, there are all the other health-related issues that have nothing to do with doctors. We are talking about walkers, wheelchairs, the need for help at home and even a day centre or being in an old folk’s home.
These are all extra expenses that may arrive sooner rather than later depending on your health, genetics and, of course, luck. So, it is important to keep them in mind and set aside a portion of your budget to deal with them or have a plan B, such as using your home to pay for your retirement.
In the end, it’s about not losing sight of the fact that retirement is a part of your path through life, and that path will change over time, as will your financial obligations.