According to EBRI, transportation, housing and healthcare are the top three expenses people face in retirement.
There probably isn’t a retirement plan advisor alive who
hasn’t heard a plan participant list all the things they want to buy or do in
What advisors don’t hear is how participants plan for the
additional costs that go along with traveling more or owning more real estate. How
about that new car? Most plan participants see the shiny sports car, but don’t
see the cash needed to actually own it. According to Employee Benefits Research
Institute (EBRI), people aged 65 or older can expect to pay roughly 16% of
their retirement income on transportation. Insurance, fuel costs, maintenance
and repairs, even car rentals and using public transportation adds up.
According to EBRI, transportation, housing and healthcare
are the top three expenses people face in retirement. A 35-year-old planning to
buy a second home in retirement can’t expect to pay the same price for the
home, not to mention the same tax bill in 30+ years.
Rising healthcare costs will also impact current retirement
savings accounts. EBRI estimated in 2015 that a 65-year-old male would need
$68,000 in retirement to cover healthcare costs. Females the same age would
need $89,000. That amount would give retirees a 50% chance of covering
healthcare costs in retirement.
Also, more downtime means more desire to travel or take up
other activities. That means more expense. Traveling more means more meals out,
more fuel consumption, more auto repairs and maintenance. Housesitting fees,
kennels, and all additional costs of traveling can add up quickly. Also, too
many plan participants fail to account for inflation.
Advisors can help participants understand the various
factors that will impact their retirement. Here’s how:
Arguably the most worrisome costs in retirement are
healthcare costs. Advisors should help participants plan for a 95-year lifespan
that includes the additional healthcare expenses that Medicare won’t cover.
Life insurance that allows participants to accumulate cash value can help
offset healthcare costs later on. Also, advisors can help participants
calculate their individual needs and build a savings plan to help meet that
Vehicles are expensive. Prices will increase, as will taxes,
repair costs, and maintenance. Advisors can help participants figure future
costs based on cost-of-living inflation applied to all areas of vehicle
Home prices will increase, as will taxes. Where will they
want to relocate? What is the housing market like there? Is it a market that
will increase in popularity? If so, how will that impact home prices and
associated costs? Helping participants estimate these expenses now can go a
long way toward helping them save for that second home, or toward downsizing
into a smaller home.
Should plan participants earmark a portion of their
retirement savings strategy toward travel? Absolutely, if travel is part of
their retirement picture. Talk with participants about how much traveling
they’re intending to do and to where. Review various retirement savings
vehicles with them so they can choose the best way to save for their trips.
No one can know exactly how much of an impact hidden retirement expenses will have on a retirement savings portfolio. However, by arming plan participants with education and awareness, advisors can help them develop a plan for achieving their most important goals post-employment.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.get xpress proposal