By Paula Pant.
When it comes to planning for your retirement, you may assume you'll need roughly the same amount of money you live on today. That should give you a standard of living your comfortable with, and you may even have money to spare since things like your mortgage will be paid off& right?
Not necessarily.
While your current expenses are a good starting point when it comes to predicting your retirement needs, you need to bear in mind that certain life circumstances will change between now and then, and those changes could be costly.
Yes, your mortgage will be paid off and you'll no longer be paying for your children's education, but you could have a slew of new expenses you never had to deal with before.
To give you a better handle on what you can expect, consider these 5 expenses that often derail a retirement budget.
Health Costs
Medicare will cover some of your health expenses, but not all of them. You'll still have to pay for deductibles and co-pays out of pocket, and you may also fall into the Medicare Part D "donut hole," a gap in prescription drug coverage that requires you to pay out-of-pocket. In 2014, you'll fall into this coverage gap after you and your plan pay $2,850 on covered drugs. After that, you'll pay a percentage of the cost of your prescriptions until you spend enough that you're out of the "donut hole." (Check out this calculator to see if you're at risk.)
Help Around the House
You can save a lot of money by handling the projects around your house, but as you get older, this becomes harder to do. You may need to outsource tasks you can no longer physically handle yourself, such as cleaning your house, clearing the gutters, weeding, mowing the lawn, trimming hedges and washing your driveway. Be sure to factor this into your budget.
Household Retrofits
You may also find yourself having trouble getting around your home the way you used to. It might be harder for you to climb a flight of stairs, for example, or to get in-and-out of the bathtub. This may require you to medically retrofit your home to accommodate items like a chairlift, walk-in tub or wheelchair ramp. You may even need to widen the doorways to fit a wheelchair. These changes to your home can cost tens of thousands.
There's a silver lining: retrofits to your home (if they're medically necessary) may be tax-deductible if they exceed 7.5 percent of your adjusted gross income (or 10 percent of AGI if you're subject to alternative minimum tax).
Helping Out Adult Children
Times are tough, and more and more grown-up children find themselves moving back home with their parents so they can search for a job or pay down student loans. This means you pay still be picking up the tab for your adult childrens' groceries, utilities, and other expenses.
In addition to helping out your children in a pinch, you may also find yourself wanting to help them pay for a wedding, make a down payment on a home, or send their kids to better schools.
Don't let your generosity bankrupt you; set aside money now for these expenses or set up contingency plans that will soften the blow to your budget. Your college-graduate son may be welcome to borrow money to make a down payment on a home, for instance, but with the understanding that he'll have to pay it back or that it will come out of his share of the inheritance.
Helping Out Elderly Parents
If you're in the "sandwich generation," you're in the unfortunate spot of potentially caring for the generations below and above you. You could quite possibly find yourself in your 60s and 70s with elderly parents in their 80s and 90s who need your assistance especially if they didn't save much for their own retirement and are now facing mounting expenses like going into a nursing home.
These added costs all have the potential to derail your retirement budget. But being aware of these potential landmines now can help you plan accordingly so that you're able to enjoy your retirement and any extra costs that go with it as much as possible.
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