Retirement might be one of the most enjoyable periods in your life, and nearly three-quarters (72%) of workers are looking forward to this chapter, according to a report from the Transamerica Center for Retirement Studies.
However, retirement can also be incredibly expensive. Between your general living expenses, travel and hobbies, and healthcare and long-term care, retirement could easily break the bank if you're not prepared for all these costs. And a new survey reveals that your senior years might be even more expensive than you think.
Underestimating the cost of retirement
How much you'll end up spending during retirement depends on several factors, including how long you live and how much you spend each year. But many retirees end up spending more than they anticipated.
Just over one-third (34%) of retirees say overall living expenses in retirement are higher than they expected, according to a recent survey from the Employee Benefit Research Institute. In addition, around 4 in 10 retirees say they're spending more than they expected on healthcare costs in particular.
Even if you create a thorough retirement plan, there's still a chance you could be blindsided by the cost of retirement. The average worker expects retirement will cost around $1.7 million, a survey from Charles Schwab found, and just over 10% of respondents expect to spend upwards of $3 million in retirement. Retirement's not cheap, and if you underestimate how much it will cost, your retirement fund may run dry too soon.
The tough part of planning for retirement is you don't know exactly what costs to expect in your senior years -- especially when it comes to expenses like healthcare and long-term care. The good news, though, is that a little extra preparation can go a long way towards estimating your future costs.
How much will retirement cost?
As you're planning for retirement, try your best to come up with an accurate estimate of how much you'll be spending every year. While retirees will often see their costs decrease compared to what they spent while they were working, that's not always the case. You may not need to worry about commuting costs or dry-cleaning your work clothes once you retire, for instance, but you may spend significantly more on travel or new hobbies. By accounting for these costs in your retirement budget, you'll have a better idea of what to expect down the road.
When it comes to healthcare, be sure to consider all the out-of-pocket costs you'll face. Medicare doesn't cover everything, and you'll still be responsible for some costs such as premiums, deductibles, copays, and coinsurance. Original Medicare (Parts A and B) also doesn't cover routine dental or vision care, or prescription drugs. To avoid paying for those costs out-of-pocket, you'll need to enroll in additional coverage.
Long-term care is another cost that can potentially break the bank if you're not prepared for it. Around 70% of older adults will require long-term care at some point, according to the U.S. Department of Health and Human Services, and the average semi-private room in a nursing home costs just over $6,800 per month. Medicare typically won't cover long-term care either, so unless you're prepared to foot the bill yourself, you may want to sign up for long-term care insurance. You might spend a few thousand dollars per year on premiums (and rates increase the longer you wait to sign up), but it could be cheaper than spending tens or hundreds of thousands of dollars out-of-pocket on long-term care.
Retirement isn't cheap, and there's a chance it could be more expensive than you expected even if you have a retirement strategy in place. By estimating your future costs as accurately as possible, though, you can give yourself the best chance of making your money last the rest of your life.