When it comes to budgeting for retirement, several expenses fall away at retirement which, in turn, can reduce your post-retirement expenditure and provide some financial relief.
However, there are a number of expenses which may increase either at retirement or during retirement which should not be overlooked. When putting your post-retirement budget together, consider the extent to which any of the following may increase:
Your medical aid premiums are not age-rated which means that your age is not a factor when it comes to premium increases. However, medical inflation – which is generally around CPI +4% per year – is a very real threat to your retirement savings and should be carefully budgeted using future cashflow projection modelling. The result of medical inflation outstripping consumer inflation year-on-year is that your healthcare costs are likely to account for a larger portion of your overall expenditure over time.
Besides medical inflation, retirees can expect to spend more on healthcare costs such as medical appliances, walking aids, hearing and visual aids, nutrition, vitamins and supplements, and supplementary healthcare services – many of which are either not covered or only partially covered by medical aid. As you age, illness, disability or mental incapacity may mean that you require higher levels of care in the form of assisted living, home nursing or frail care, and these costs – being particularly high – may be difficult for the average retiree to budget for.
Another factor worth considering is that many gap cover providers have a higher premium for members over age 65, so be sure to account for this when budgeting.
Hobbies and entertainment
With more time on your hands, keeping yourself engaged, active and socially connected will be important, and it is possible that spending more time on your hobbies and social activities will cost more. When doing your budgeting, be realistic about how much you will spend engaging in your hobbies, eating out, taking day trips, attending the movies or theatre, entertaining at home, gardening, and home improvements, as these costs all add up. Importantly, you don’t want to find yourself in retirement and unable to afford your hobbies and social engagements, so be sure to incorporate these costs into your budget.
Pets and vet care
For many retirees, having companion animals is important to them and, thankfully, many modern retirement homes are making allowances for retirees to keep small pets such as cats and dogs. Pet food, vet care, medication, medical treatment and pet accessories can be pricy, especially if faced with large, upfront vet bills.
If you intend to travel during retirement, keep in mind that you may have additional pet care expenses such as dog sitting and dog walking. As such, it is important to ensure that you have sufficient discretionary funding in retirement as large, upfront vet expenses may be difficult to finance from your retirement drawings.
Travel and experiences
Travel, both local and international, is a high retirement priority for many retirees and, if you want to enjoy your travel goals and bucket list destinations, budgeting for these expenses is essential. Travel generally becomes more and more difficult as we age and, as such, retirement plans normally factor in higher travel expenses in the first decade of retirement, tapering out as one ages and becomes less physically mobile.
If you have adult children living overseas, your travel expenses may be somewhat higher especially if you intend to visit frequently and stay for longer periods of time. As your ability to travel internationally slows down, you may find yourself spending more frequent local travel, so these costs should be factored in.
Again, paying for overseas travel will require access to larger capital amounts than would be affordable from your monthly retirement drawings so you will need to ensure that you have sufficient discretionary funds, keeping in mind that withdrawals from your discretionary investments may trigger a capital gains event, so be sure to build these withdrawals into your retirement planning.
Home renovations and adaptations
As one ages, it may be necessary to modify or renovate your home to accommodate your physical needs. If you suffer from a disability or physical incapacity, you may need to make home adaptations to allow for ease of movement. Such modifications could include building a walk-in shower, installing a raised bath or toilet, installing handrails and wheelchair ramps, widening doorways to accommodate wheelchairs, or installing non-slip floors. It may also be necessary to budget for vehicle modifications.
Levies and security
If you plan to live in a retirement village, townhouse complex or life rights village, you can expect to pay monthly levies which may be considerable depending on the utilities on offer. With this in mind, it is important to do your upfront homework and research so that you know exactly what your levies will cover.
Check whether the levies cover services such as refuse and waste, cleaning, building maintenance and upkeep, laundry services, garden upkeep, and security. Some levies also include a set number of meals per month, access to onsite clinics and nursing facilities, libraries, clubhouses and clubs, so find out exactly what you will be receiving in return for your monthly levies, and what you need to budget for separately.
If you plan to continue living independently for as long as possible, you may want to spend some money upgrading your home security system, so consider what this would cost, both upfront and in the form of armed response.
Technology and online entertainment
Staying connected with loved ones and friends – especially if you have loved ones living overseas – means staying technologically updated and relevant. This means regularly upgrading your hardware and software in the form of smartphones, smart TVs, computers, laptops, tablets, headsets and other devices, and keeping yourself connected to the internet. Online entertainment in the form of Netflix, Showmax, Britbox, DSTV and other subscriptions all add, so be sure to budget for them.
Again, with more time on your hands, it’s likely that you’ll spend more time reading during your retirement years in the form of books, e-readers, magazines, newspapers and other publications. There are ways of reducing these costs such as making use of libraries, joining a book club, making use of pensioner discounts, and shopping at second-hand bookshops.
With more time on your hands, many retirees get more involved in their Church, charities and NGOs and you may be tempted to spend more on your charitable giving than your budget allows. What is important is to ensure that your charitable giving has been budgeted for and that it doesn’t compromise your future retirement. Remember, there are tax deductions available for donating towards a registered Public Benefit Organisation, so find out whether your charity is registered accordingly.
Family and grandchildren
Most grandparents long to spoil their grandchildren whether in the form of money, gifts or experiences. If you plan to assist financially with the education or extracurricular costs of your grandchildren, be sure to incorporate these intentions into your financial planning objective setting so that it can be budgeted for, bearing in mind that there may be tax implications if making donations to others.