Beware of These 7 Retirement Fund Depleting Expenses

These top 7 expenses could quickly diminish your retirement savings giving you a tough time.

PUBLISHED APR 1, 2024

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Top 7 Expenses Set to Deplete Your Retirement Savings

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Retirement expenses are overwhelming for everyone entering that phase but some wiser retirees have relished it by making tough decisions. When you finally retire, the common human nature says that a person needs assurances that he has saved enough to take care of himself. If you have entered the age or getting ready to retire, it’s smart to consider things that might eat up a major part of your savings if not controlled on time. Here are seven expenses that could bring down your retirement funds and ways to tackle them.

1. Inflation

Inflation can hit the expenses at any time. Image Source: Unsplash|Photo by Sara Kurfeß

Inflation is one thing that is not in your hands and if it hits the country, it drains all your savings and funds. As per Jeff Busch, partner, and investment advisor 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 overtime”. To combat inflation you can diversify the investment portfolio and invest some portion in stocks and bonds; the rest can be cash in hand. This diversification will help you not lose all your retirement money and can also yield you impressive profits.

2. Healthcare

Healthcare expenses in old age are quite unavoidable. Image Source: Pexels|Photo by Christine Sandu

Healthcare and its expenses are much more critical in older age as neither it can be avoided nor it is economical. Senior citizens do get discounts on medicines, prescriptions, and other treatments but are more prone to surgeries and critical diseases demanding long-term care. As per HealthView Services Financial estimates, a healthy 65-year-old couple who retired in 2021 will be spending between $156,208 and $1 million on healthcare costs in the coming years. The only option to save money is to maintain a Health Savings Account (HSA) or create provisions for your medical expenses.

3. Taxes

Paying taxes every year is mandatory for every resident. Image Source: Pexels|Photo by Olga Delawrence

When you start using the money invested in your retirement account, you are eligible and mandated under the tax slabs and provisions. Additionally, some social security benefits also require tax intervention. Some retirees receive pensions while others live on an accumulated amount. As a result, high tax rates might hamper and lower their income with monthly expenses touching the skies. Busch suggested one way to reduce taxes is to swap your retirement accounts into ones where you don't have to pay taxes, like a Roth IRA. This financial planning helps convert your taxable retirement accounts into tax-free withdrawals you can make.

4. House Repairs

Home demands repair after some time. Image Source: Unsplash|Photo by Annie Gray

If you have a home, whether the owner is old or young, the house demands repairs which is a huge expense. Taylor Kovar, certified financial planner and CEO at The Money Couple mentioned, “As homes age, significant repairs like roof replacements or plumbing issues become more frequent”. These unexpected expenses can eat out a major chunk of your retirement savings leaving you with less corpus. The only way to fix this is to have regular home inspections and make small repairs to avoid the accumulation of a large one demanding huge dollars.

5. Unstable Market Conditions

Market ups and downs can sometimes greatly hamper your funds. Image Source: Unsplash|Photo by Anne Nygård

Ups and downs in the stock market affect the portfolios of those who are invested. When you are in the retirement phase your risk-taking capacity reduces and just one big hit can reduce a lot of your savings. This can sometimes take a toll on your mental and physical health. If you are somewhat close to your retirement age Busch suggests keeping aside funds equivalent to your three years of income in a low-charge account that can give you some profits. He added, “Rebalancing your portfolio as needed will also help to keep your assets in line with your income needs, as well as manage market risk”.

6. Children and Grandchildren

Children are a blessing but after a certain age paying for them can drain your expenses. Image Source: Unsplash|Photo by Johnny Cohen

A larger percentage of Gen Z depend on their parents for their financial expenses despite having jobs. Research conducted by Merrill Lynch in 2018 reveals that around 79% of parents are extending financial aid to their adult children which annually comes to a colossal amount of $500 billion. Showering love on children and grandchildren is natural but it should not drain away all your retirement savings. As per Kovar’s expert advice setting financial limits or boundaries and having an open discussion with family can help you sustain your survival funds.

7. Longevity

To live a long life one needs money. Image Source: Unsplash|Photo by JW.

In coming years people are expected to live much longer due to technological and medical advancements. According to the National Center for Health Statistics, a baby born in 2021 is expected to live about 76 years old. But living longer comes with a long list of hefty expenses and till the time you enter retirement age most of your funds are drained out. Kovar explains, “With many people living into their 90s or even 100s, it’s crucial to plan for a longer retirement than you might expect”. To ensure financial stability individuals need to invest in long-term care insurance, financial adjustments, and other avenues that guarantee a regular flow of income in old age.