7 Expenses That Drain Your Retirement Savings the Quickest
You’ve spent a good portion of your life working and saving to pad your retirement fund. Once you reach that milestone, you want to feel confident that your nest egg filled with 401(k) contributions, traditional IRA lump sum distributions and Social Security benefits is big enough to cover your needs in your golden years.
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As you approach retirement age, it’s important to analyze your investment strategy and anticipate some of the costs that could eat into your savings. Here are seven expenses that can drain your retirement savings — and how to plan for them.
Healthcare
Even with Medicare, out-of-pocket healthcare expenses can be significant. According to Taylor Kovar, certified financial planner and CEO at The Money Couple and Kovar Wealth Management, “This includes prescriptions, surgeries, and long-term care costs.”
Many financial experts estimate that you will need at least $1 million saved to retire comfortably, and with seniors paying hundreds of thousands of dollars on medical bills, this shortens how long even exorbitant funds will last.
How To Plan: Kovar said it’s a good idea to have a health savings account (HSA) or a similar fund specifically for medical expenses. “Regularly reviewing your health insurance and considering supplemental insurance can also help mitigate these costs,” he added.
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Homeownership
If you own a home, that can be another source of major expenses that eat into retirement funds. “As homes age, significant repairs like roof replacements or plumbing issues become more frequent,” Kovar said. This holds true especially if you’ve lived in your house for many years as that tends to lead to expensive repairs and upkeep for older features.
How To Plan: Kovar recommends setting aside a home maintenance fund and conducting regular home inspections to help anticipate and spread out these costs.
Inflation
Inflation can significantly impact your future savings, since you’ll need to take larger withdrawals to make up for the higher cost of living. According to Jeff Busch, partner and investment advisor representative at Lift Financial, “This can be particularly troublesome if your portfolio is made up of fixed income strategies that can’t keep up with inflation by increasing income over time.”
How To Plan: To mitigate inflation, Busch said you may want to invest a portion of your portfolio in stocks that have historically provided better returns than bonds and cash. In general, he added, maintaining a diversified portfolio can be a big help in the long run.
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