By Heidi Huiskamp, Founder and CEO of Huiskamp Collins Investments, LLC
Welcome back to our “Retirement Basics” series where last month I discussed “The Income” side of the equation along with thoughts, strategies and “rules-of-thumb” on taking income from social security, taxable accounts, and retirement accounts. This month, please join me in looking at the costs of enjoying a fruitful retirement…some that you take for granted and others of which you might not have considered.
It’s no surprise that housing will probably continue to be your biggest monthly cost in retirement. Taxes and insurance are a must, but don’t forget about home maintenance. A popular “rule-of-thumb” is to save one percent of your home’s value in a safe vehicle which you can easily access like a savings or money market fund. By staying on top of routine maintenance, you’ll save yourself time and additional funds down the road if you need major repairs. Younger retirees may be eager to do major updates now that they are home a good part of the day and are more “in tune” with “wouldn’t it be great?” projects like new kitchens, swimming pools, etc. A word to the wise: do your homework. Costly home updates rarely pay for themselves once it comes time to sell your house and, given the chance that the time left before you sell your home may be shortened due to potential health or family circumstances, your investment might not be the best use of your hard-earned retirement dollars.
Now let’s talk about mortgages. According to a 2019 study by Harvard University, a full 46 percent of homeowners aged 65-79 have mortgages. That’s close to half! In days gone by, families had “mortgage-burning” parties and wouldn’t dream of retiring while still paying off their mortgage. Unfortunately, that mindset no longer holds true and it is not unusual for me to meet seniors who have TWO mortgages. I’ve heard every excuse in the book, but I’m a pretty conservative girl: if your health holds out and you can work an extra year or so to accelerate paying off your mortgage, please give it some consideration. The financial freedom it will give you is unequaled. I promise you that spending your money on travel, entertainment, and family is infinitely more satisfying than making a monthly payment to a bank, credit union, or mortgage company.
Credit cards are next—the “down and dirty.” Use credit cards rather than debit cards as they provide more protection if your card gets “hacked” and pay them off every month. Choose a card with no annual fee. I like cards that pay you cash back on purchases. My own strategy is to pay for everything…goods and services…with my “cash-back” card and then treat myself to a small indulgence with the cash reward. Be very careful with retail store cards. If you carry a balance, the interest rate is usually higher than a Mastercard/Visa/Discover.
The trick to staying out of credit card trouble is to have a reliable emergency fund kept in a savings or money market fund. According to a 2020 report by CNBC, only 41 percent of Americans have enough savings to navigate a $1,000 emergency bill. Before you open your vacation account or go crazy on the grandkids, please make sure you have saved an amount equal to 3-6 months of living expenses. Emergencies happen every day when you least expect them. Be prepared and you’ll sleep easier at night.
The big “elephant in the room” is healthcare costs. I get a lot of “pushback” on this. When I’m doing financial planning for seniors, I always build in a lifespan of 90-95 years and I’m frequently told that the individual or couple will never need to plan for that kind of timeframe as mom, dad, or Aunt Zelda passed when they were in their 60s. With medical advances and the need to not outlive your savings, planning for a longer retirement is just the more prudent road to take. Investopedia recently cited a study that a married couple retiring when they are both 65 years old will spend approximately $295,000 on healthcare costs in retirement. And that’s on top of Medicare! Spending the time every year to review whether your Part D policy still covers all your prescriptions, whether your healthcare providers are still in your plan, and keeping up-to-date on your long-term care polices, if you have one, can really put you ahead of the game. If you expect outsize healthcare costs in a given year, think about “bunching” costs from one year into another so you can deduct them on your taxes.
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Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC. Advisory services offered through J.W. Cole Advisors, Inc. (JWCA). Huiskamp Collins Investments, LLC and JWC/JWCA are unaffiliated entities.