Retirement is a period of life that many people look forward to. But unfortunately, some seniors end up finding it overwhelmingly stressful. And the reason boils down to underestimating the following specific retirement costs.
Many people are able to enter retirement with their homes paid off. But those who do tend to assume that they'll spend little on housing during their senior years.
In reality, your housing costs could be substantial, even in the absence of a mortgage payment. That's because you'll still need to cover expenses like property taxes, insurance, maintenance, and repairs. Furthermore, as you age, your ability to handle upkeep yourself may wane, thereby adding to your costs.
It's a big myth that Medicare helps healthcare get less expensive. Not only does Medicare itself cost money, but there's a host of services it won't pay for, like dental and eye exams. Furthermore, as you age, certain health issues could arise that are beyond your control -- even if you do your best to maintain a healthy lifestyle.
Recent estimates point to the average healthy 65-year-old couple spending as much as $662,156 on healthcare throughout their senior years. And that doesn't even include the cost of long-term care.
3. Staying busy
You may not realize it now, but working full-time has the benefit of keeping you busy without having to spend money (aside from what you pay to commute). Once you retire, you'll need something to do with your days, whether it's traveling, playing tennis, or taking classes. But either way, the cost of staying busy could end up being higher than anticipated.
You may have plans to spend your time engaging in free activities. But even those may have a hidden cost.
If you intend to volunteer at a local animal shelter, for example, you'll still need a way to get there, which means spending money on gas for your car. And if you love gardening, you'll spend something on plants and supplies. As such, you can't assume that you'll manage to get through retirement without sinking a lot of money into filling your days.
Don't get caught in a financial crunch
Clearly, retirement has the potential to cost more than you may have bargained for, so it's important to save for that milestone while you can rather than plan to fall back on Social Security. If you sock away $500 a month in an IRA or 401(k) plan over the next 25 years and your investments generate an average annual 8% return (which is a bit below the stock market's average), you'll wind up with a nest egg worth almost $440,000. Make it $600 a month, and you'll be sitting on around $525,000.
At the same time, have a realistic view of what retirement will cost and prepare to make changes to ensure you can afford your lifestyle. That could mean downsizing your home or moving to a state that's less expensive. With proper planning, you can avoid the financial hardships so many retirees face.