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I'm trying to figure out the real cost of retirement.
Assume that someone has a fully paid home and car. They also have medical insurance.
Besides utilities and food, what are the other major, regular expenses during retirement?
I'm doing an estimate. If I have $1k a month coming in from a pension, $1.5k a month from SS, and $1k a month from a 401k, that's about $3500 income a month. Yes, I know that taxes will come into play.
Without any major expenses like mortgage/rent/car, I think I'll be okay???
Charlygal, the "real" costs of retirement are the same as the "real" costs of living before retirement, plus or minus the changes in spending that you will make BECAUSE you retired. Do you have a good handle on what you spend right now? The net costs in retirement could be more, less, or the same. For example:
1. Will you realize any net savings by not working? Some people do. They may drive less, eat cheaper lunches at home, save on dry cleaning, etc. I did not save anything because I had a short commute and drove MORE after retiring because I had more time to go places, see things, and do things. I wear the same clothes now that I wore to work - no changes. (Had little to no dry cleaning then, still don't). The employee cafeteria was quite cheap - I often pay more for my lunches now locally.
2. Will your travel/hobby/entertainment expenses go up or down? Mine went up, as I now have more time to travel and go to concerts, movies, etc. Will you spend more time pursuing an expensive hobby, or are you a watch-TV-at-home type person?
3. Are you relocating for retirement or staying put? If you are staying put, your general cost of living for housing, groceries, clothes, etc. is likely to be about the same. But many people relocate to a lower cost of living area for retirement where they can spend less (mainly for housing).
4. Medical/dental: Did you have a pretty good subsidy for medical and dental care from your employer? If so, you may now spend more in those areas. If not, and if you are about to transition to Medicare at age 65, then your expenses for medical care may go DOWN substantially. Dental is the wild card, it seems to me, as it is not covered by Medicare.
I spend somewhat more now that I am retired, but not substantially more. You do not give us enough information in your post for us to answer your question. You give income information, but not expenditure information. (Sure, a paid-off house and paid-off car are good starting points, but how old is the house and how old is the car? If they are old, you are going to have maintenance expenses.)
Most people can live quite comfortably on $3500 a month, provided they do not live somewhere like New York City or Honolulu. With even small iota of frugality you should be fine, subject to the kinds of variables I listed above.
Property taxes and insurance continue even after the mortgage is paid off.
If under 65 then medical expenses can big a big hit to the wallet - I just paid about 6,500 out of pocket with a gall bladder problem (started with a trip to the ER, had to have some pricey tests before surgery and then the surgery itself).
Home maintenance may be a factor, will the place need a new roof, new HVAC system, appliance replacement, etc. If you know that a bunch of those things might "come due" in a short period of time one needs to have some funds set aside for them.
Property tax can be HUGE if you live in particular states (including, alas, my own state, New Hampshire). As much as I love living here now while I'm working and making a good salary, I may move after retirement because while the house should be paid off, I expect my property tax bill will be at least $1,000 a month by then. Add utilities & maintenance and it's another $500/month (at least -- and that's assuming I replace the roof before retirement).
OP, obviously YMMV ... depends on where you'll be living after retirement.
You need to list all the expenses you had in the last year and then adjust to your retirement life style. Be sure to include medical related expenses. Probably need to add in two more cars. Maintenance on your home. new roof etc. do some searches on budgets for ideas of what you will need. How sure are you that the 401k will generate 1,000 per month. I assume it is about 400,000.
Your age and life expectancy is important. If you are under 65 the medical expense will be higher as you will not have medicare.
I'm trying to figure out the real cost of retirement.
Assume that someone has a fully paid home and car. They also have medical insurance.
Besides utilities and food, what are the other major, regular expenses during retirement?
I'm doing an estimate. If I have $1k a month coming in from a pension, $1.5k a month from SS, and $1k a month from a 401k, that's about $3500 income a month. Yes, I know that taxes will come into play.
Without any major expenses like mortgage/rent/car, I think I'll be okay???
What am I missing?
pension and SS are indefinite (sort of) but 401k doesn't last forever, right? a car also does not last forever.
costs to consider home property tax (net of any tax relief), home maintenance, hoa (can be very high in some circumstances), travel, car maintenance, car insurance, out of pocket medical costs, entertainment/leisure costs (e.g. golf, drinking, gambling)
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