The Real Cost of Retirement: Are You Saving Enough?

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Social Security benefits in 2023 will see the highest increase in 40 years, but will it be enough to cover the real cost of retirement?
In 2023, there will be an 8.7% increase for COLA (Cost-of-Living Adjustment), up from the 5.9% adjustment in 2022.

While this is a significant increase, it is still not enough to cover the cost of retirement. Not even close.

The cost of retirement continues to increase, especially with inflation and rising medical costs.
Experts suggest the cost of retirement is 80% of your pre-retirement income.

The issue is that most Americans have a disconnect between what they think they will need during their retirement years and the actual cost of retirement.
It comes down to factoring in the following:
Your retirement age
Your health
Your lifestyle expectations
On top of these personal determining factors, you also must consider the costs of medical care, transportation, housing, food, and long-term care.

To give you a better idea of the cost of retirement, we’re breaking down those factors for you.

Medical Costs
Many people mistakenly believe medical costs will be covered by Medicare.
While Medicare does help with medical costs, it does not cover everything.
For example, it is up to the individual to cover supplemental coverage and out-of-pocket expenses.
Depending on the Medicare plan you choose, you may be on the hook for paying for prescription drugs, co-payments, and deductibles.
Additionally, Medicare doesn’t cover other overlooked retirement expenses, including dental, vision, or hearing aids.
The problem is that, even if you enter retirement healthy, it doesn’t mean you will stay healthy throughout your retirement years.
Medical issues tend to occur more often as we grow older, which is why it is important to factor medical costs into the cost of retirement.

Transportation Expenses
Transportation costs typically go down during retirement years.
According to Kiplinger, “The average working household spent $9,761 each year on transportation. That number drops to $6,814 for the average retired household.”
This equates to $568 a month in transportation expenses.
However, as the last year has shown, transportation costs (i.e., gas) can rise suddenly.
When considering the cost of retirement, factor in the following transportation expenses: vehicles, gas, insurance, maintenance, rentals, and public transportation.

Housing Costs
Even if you enter retirement without a home mortgage, you will still need to factor in housing costs.
You may need to pay for housing upgrades, lawn maintenance, and/or repairs.
As you get older, you may be unable to do these yourself and may need to hire outside help (another cost).
You also need to factor in utilities.
Even if your house is paid off, you will still get a water bill, power bill, gas bill, etc. And don’t forget the cost of property taxes and insurance.

Food Expenses
Reports suggest, “Retiree households spend an average of $6,137 ($511 a month) on food, compared to $7,923 annually ($660 monthly) for the average U.S. household.”
Given inflation, those numbers will be significantly higher for 2022 and beyond.

Long-Term Care Expenses
It’s tough to think about long-term care, but it is a big factor in the cost of retirement.
The U.S. Department of Health and Human Services estimates, “Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years.”

Unless you plan on passing on the burden of long-term care to your children, you should factor in these costs.
Genworth, a long-term care insurer, recently published the Cost of Care Survey for 2021.
A private room in a nursing home in 2021 averages $108,405 annually.
An assisted living facility in 2021 averages $54,000 annually.
A home care health aid in 2021 averages $61,776 annually.
These rates have increased significantly since 2021.

The Big Takeaway: Save Like Your Future Depends on It
Take the numbers above and compare them to what your monthly Social Security benefits check should look like.
Will it be enough? The answer is probably not.
So, how will you cover the additional costs? The answer: from personal retirement savings.
Here are some ways to boost your retirement savings to ensure you have enough money in retirement:

#1 Increase Saving In 401(k) or Workplace retirement account

#2 Take Advantage of Catch-Up Contributions If over Age 50

#3 Avoid Tapping into Your 401(k)

#4 Get Company Match No Matter What

#5 Stay Engaged With Your 401(k)

Don’t just set up your 401(k) and leave it alone. You need to stay engaged!
Continue learning more about 401(k) savings and the cost of retirement.
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Retirement is something that most of us look forward to. After a lifetime of hard work, it’s nice to have a chance to relax and enjoy the fruits of our labor. But while retirement may seem like a distant dream, it’s important to start planning for it now. The real cost of retirement can be quite high, and it’s essential to make sure you’re saving enough to cover all your expenses.

Retirement is expensive. You’ll need to factor in the cost of housing, healthcare, and other living expenses. You’ll also need to consider the cost of leisure activities, travel, and other hobbies. Even if you’ve saved a substantial amount of money, it may not be enough to cover all of these costs.

The best way to make sure you’re saving enough for retirement is to create a budget. Take a look at your current income and expenses and determine how much you can realistically save each month. Then, make sure to set aside a portion of your income for retirement. Consider investing in stocks and bonds, or setting up a retirement account.

It’s also important to factor in inflation when calculating the real cost of retirement. Inflation can erode your savings over time, so it’s important to make sure your savings will keep up with the rising cost of living. Consider investing in inflation-protected investments, such as Treasury Inflation-Protected Securities (TIPS).

Finally, don’t forget to factor in the cost of long-term care. This can be a significant expense, especially if you’re not covered by Medicare or other health insurance. Consider purchasing a long-term care insurance policy to help cover the cost of in-home care or assisted living.

Retirement is an exciting time, but it can also be expensive. Make sure you’re saving enough for retirement by creating a budget and investing in the right types of investments. With the right preparation, you can ensure a comfortable retirement.