Expenses in Retirement
Your expenses will likely change as you grow older. Early on, you will spend less on work-related things like transportation and clothing. Maybe you'll spend more on traveling, hobbies, or other things you have always wanted to do. As you age, it is likely that more of your budget will go toward medical expenses, which you will read about soon. Retired people may find that recording their expenses will alter future spending patterns.
Inflation And Your Future
Inflation, in its simplest terms, means that dollar for dollar your money will not buy as much next year as it does this year. This means inflation is a major factor in determining how much money you will need in retirement since, to cover inflation’s impact, you will need more money every year. In other words, if your money is not earning more than the rate of inflation, you will lose part of your nest egg’s buying power.
You can't know and can't control future inflation. The only accurate inflation rates are from the past, and they vary widely. In 1980, overall prices went up a whopping 13.5 percent; in 2002, they went up only 1.6 percent. Looking at the past shows how rates may vary widely.
Facing Down Rising Costs
One exception to low inflation rates is medical costs, which have risen faster than inflation over the last 20 years and some experts think will rise about 7 percent a year over the coming years. If you have, or your family history includes, a serious medical condition like heart disease, you will probably spend more on health care than you ever imagined. According to recent studies, almost 20 percent of retiree income will be spent on health care.
While Medicare is a great benefit to persons 65 and older, it does not cover all medical costs - deductibles, co-payments, and long-term care, for example. Medicare Part A covers hospital care only. Medicare Part B, an additional insurance you will be offered when you become 65, covers doctors' services, outpatient hospital care, and things like physical and occupational therapy and some home health care. The current cost of Medicare Part B is about $96 per month for most people, although some may pay more. In addition to Medicare Parts A and B, many retirees buy Medigap policies for uncovered services like dental and vision care and drugs. Depending upon where you live and the policy you choose, you can pay from well under $100 to as much as $350 a month. Medicare, private insurance, and/or Medicaid pay for only about 79 percent of retirees’ overall health care expenses.
An additional feature is the Medicare prescription drug program (Medicare Part D). Those who become eligible for Medicare Part A and/or Part B can join a prescription drug plan offered in their area. By paying a small premium - around $30 a month in 2010 - those who join will be able to get prescription drugs at a lower cost.
If you are thinking about retiring early, you may have to buy health insurance until Medicare kicks in at age 65 if your employer does not cover health care for retirees. You should know that employer-provided health benefits for retirees might not be guaranteed, and could be reduced or eliminated by your former employer under some circumstances.
Don P. Baker Financial Group can help you with ALL of your insurance needs.