Don't Let These Retirement Spending Surprises Derail Your Retirement Plan!

Often in life we can't peer around the corner and know what's on the otherside. That's true for many things in retirement. But we CAN use data and our experience helping clients navigate retirement to show you some unexpected surprises that often catch people off guard. In this episode, we discuss common retirement spending surprises so that you can plan ahead! We cover:

  1. How much will you really spend in retirement? Will your spending go down?

  2. How much will health insurance cost?

  3. What happens to health care costs before turning 65 (early retirement planners listen here)

  4. What about Medicare costs...and how to manage them

  5. How to plan for inflation so that it doesn't impact your standard of living down the road

Transcript:

Hello. Hello, welcome to the six figure investor. We're so glad that you're back for another episode of Brian and Saxon talk money. Brian and Saxon talk money. I like that. We've been hearing from some of you recently that the financial content on the show is good, but the answer between the two of us is better.

So I'm here to bring the jokes. Should we, maybe we should just like tell jokes and not do any actual content. I Don. Do you think people would still listen, know if we could be this six figure investor? If we don't talk about money, if you don't talk about money, I don't think people would listen to us tell jokes.

So there has to be like a reason why they listen to the jokes. Yeah. We're really not that funny. So. All right guys, what are you gonna get out of today's episode? We're talking about if you wanna quit your job and be financially independent or you're facing this lovely thing called retirement, some spending surprises that might come your.

Are they spending surprises or just surprises, surprises? I think they're spending related surprises, but there are things that can derail you from being able to do what you wanna do, either retire or become financially independent. I thought it would be good to talk about these things before they happen so that people can plan for them. And it doesn't derail their journey to financial independence or. Excellent idea. And selfishly, I just wanna be financially independent. So you can tell me the precursors of doing that.

All right, Brian. We're back. Let's dive in. I think up first, we wanna talk about retirement. Oh to retirement or even, even just financial independence. Right. If you stop going to work every single day, like what happens? Yeah. What happens? So like sort of like you what happens? Right. So what's actually interesting is most people assume that when they retire or when they become financially independent, that they're gonna spend less money.

And there's a lot of research that's been done and there's a lot of rules of them out there about maybe you're gonna spend 80% in retirement and there's all this stuff that happens. The reality is most people actually spent five to 10% more money every year, the first four or five years after retirement.

Yeah, because you can finally take that trip to Boca. You go on trips, you decorate your house, you relocate, you live a more active lifestyle. Like I think the best way to think about it is like every day is a Saturday. And if you looked at your spending today, you probably spend more on the weekends because you're doing fun stuff and you're not.

Um, Then other days of the week. And so when every day becomes a Saturday and you can do, what you want with your time, you actually spend a little bit more money and, and everybody swears that this is not true, right? Everybody that I talk to says, nah, it's not true. I'm gonna spend less most of the major money center banks.

, others have done research on this and they can actually see what's happening in your checking account. And they can see the changes that happen leading up to you. And then immediately following retire. and you spend more money, there's more money flowing through your checking account when those things are happening.

And so so despite what you may think is gonna happen you need to plan for what you're gonna do with all that new time you have on your hands. Are you gonna start new hobbies or you're gonna travel more? And then you want to include all that stuff and your budget. It's not necessarily a bad thing because over the long term, you're spending a will go down in retirement, but it's usually not gonna happen in those first couple of years.

So it's just important to think about that and make sure you budget for it.

So true. Cuz those are the years where hopefully you're still really mobile and having fun and doing stuff. Love it. Well around that same time, everyone starts to worry about healthcare costs too. So maybe you should talk a little bit about what happens there.

Yeah. So let's talk about healthcare. So let's start for people that say, Hey, I want to have an early retirement which is anytime before 65. So if you wanna retire at 40, 45, 50 55 60. You're retiring early and Medicare, which is the program for retiree healthcare. Doesn't start until you turn 65.

So that means that you are responsible for your own healthcare prior to that point through private health insurance. On average, a 60 year old man that's buying private insurance through the healthcare exchange is gonna spend more than $9,000 a year. Yeah. On insurance premium. So $18,000 a year for a.

then just like when you have private insurance through an employer today, you've got another two, $3,000 of, out of pocket expenses, like copays and expenses on drugs. And so for two people, that's close to $23,000 a year just on private health insurance. And that's an average, so that means some of you are gonna spend more than that on healthcare, and some will spend less. So budgeting for private health insurance is key as you plan to think about retiring early.

This is also a really good place to think about what retirement or financial independence really means for you. Would you consider staying on part-time with an employer, maybe taking a job teaching or at a local nonprofit? All those kinds of jobs might come with like more schedule flexibility, which is a lot of times what folks are looking for.

Hey, I want to be able to spend my time doing the things that I want versus working all day, and they might also include healthcare benefits. May be, may make you able to reach your goal of becoming financially independent or retiring sooner. If you don't have to worry about that, you know, 20 plus thousand dollars of healthcare expenses every year.

So you've got a plan for healthcare, especially if you're gonna retire early and make sure that it's not something that Denver helps you along the way. That's true. But then. Hopefully you'll turn 65. yeah. So the good news is Medicare does drive down the cost of insurance. Your out of pocket expenses are generally pretty consistent.

But we see total spending go down to $6,000 or so a year, a person, $12,000 a couple, again, it's dependent on your health situation and the choices that you make around the different types of Medicare plans. That's a whole nother episode that we can do later. But what's important though, is as we age.

So you get this dropdown when you turn 65, because Medicare is, is paying some of the cost of those health insurance premiums, but your, he. Costs continue to increase throughout the rest of your life. So by 85, the average jumps to $34,000 a year per person. So the costs are still really significant.

And you need to plan for them as you think about becoming financially independent. It's also a good, I think time to just jump in and talk about long term care insurance, a little bit, cuz people hear those numbers and they say, I need to buy long term care insurance because a lot of those really big expenses towards the end of our lifetime maybe are in a nursing home or in a rehab facility

and you say, Hey, maybe I can buy insurance to kind of offset the cost of that. We could, again, this is a topic we could do a whole like episode on, but long term care insurance can be beneficial if. Um, Purchase those plans when you're in your early fifties. What we generally see is that as you age into your late fifties and your early sixties, which is when people really start thinking about long-term healthcare insurance the premiums become so high that you're better off self-insuring.

So every situation's a little bit different people have different risk tolerances and different health factors. That can be part of that decision. But if you're thinking about long term care insurance, it's something to think about really when you're in your forties and early fifties and not wait too long.

To to, to get long-term long-term care insurance. So again, not something that everybody must have, but if you're going to do it, it's something that you have to do sooner rather than later. So if someone's listening in there kind of beyond that late F late forties, early fifties point.

For most folks. Yeah. It would make more sense to what I call self-insure, which just means that as you build your plan for becoming financial, independent or retiring you're just gonna include the cost of healthcare as part of that plan. And so you've got money to pay for expenses as they come up.

Yep. And then, so the last thing is inflation. And I think we're all maybe more painfully aware of this now than we were a year ago, because, you know, we used to have to spend a lot of time talking about the impact of inflation, because it was just slow going grind. But it's really important. Even if inflation goes back down to the sort of a 2% level, right over the next decade, that's still a 20% price increase roughly.

Between now and 2030. Wow. And so that those small percentage increases add up over time and that's on like that $34,000 a year. You need when you're 85 or the $20,000 a year that you need when you're like 60 that's. Right. Huh. So. So, yeah, I mean, if you're gonna buy a house, right. All the expenses that you have in your, in daily, living, traveling, all that stuff becomes, you know, 20% or so, more expensive every decade.

Right. And, and, and again, that assumes that things are just moving at sort of relatively stable rates. It's very possible that we have higher inflation long term given the current economic outlook that we see. So so inflation is something that you absolutely have to plan for. And make sure that again, you've got assets and, and more importantly, you've got an investment plan.

That's going to help take care of the impact of inflation on your ability to spend and do the things you want when you become financially independent. Because everybody who becomes financially independent or retires wants to have fun and not sit around and worry about money all day. So if we think about these three things, I think these are the things that could potentially derail folks.

When they're thinking about retirement and if you plan for these things, then I think you can be more successful then if they just sort of pop up in the last minute and those three things are making sure that you're prepared to spend a little bit more right around when you retire. And making sure that you've got a really good plan around healthcare, both before you get Medicare and after you're 65 and are eligible for Medicare, and then making sure that you're taking it into account impact of inflation and what that's gonna do on your spending and on your investments.

Awesome. Thanks for putting together such a like tactical bite size episode. Brian. Love it. Cool. All right, friends, we'll see you again soon. Thanks for listening to another episode of the six figure investor

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