This Surprise Expense Is Likely to Upend Your Budget in Retirement (Hint: It's Not Health Care)
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Given that most people retire around the age when medical issues begin to stack up, you may fear that the cost of health care will eat into your retirement savings.
But new data suggests it's really your house you should be worrying about.
Analysis from investment management company T. Rowe Price shows that the costs of maintaining your home are most likely to upend your financial plans in retirement. In fact, home expenses contribute to a whopping one-quarter of the average American's increased spending in retirement.
What retirees spend money on most
Research from T. Rowe Price shows that retirement tends to have a fairly sizable impact on your spending habits. About half of the roughly 1,300 American households surveyed by the company said they experienced an up to 25% annual increase in their spending after retiring. One in five said their spending increased by over 50%.
While you might assume that health care costs would be to blame for this increase, it's actually home expenses that put the biggest dent in retirement savings. These expenses, which the company defined as things like home repairs, mortgages, rent and taxes, contribute to about 25% of the average retiree's increase in spending.
Health care-related costs, on the other hand, make up about 5%.
Notably, the report finds that volatility in spending does not change across income levels; lower-income individuals and higher-income individuals tend to see the same fluctuations in retirement.
However, the type of spending does differ. Wealthier retirees do not see so much variance in their home expenses. Rather, the increase in annual spending for this demographic tends to be caused by discretionary expenses like travel, leisure and dining.
Other unexpected costs in retirement
Homeownership gets more expensive with each year, even if your house is fully paid off. The average annual cost of owning a home in 2023 is now $17,500, not including a mortgage payment. Last year, that figure was just $15,400.
An increasing number of retirees are finishing their careers whilst still owing on their mortgages; 44% of retirement-age homeowners are carrying their mortgages into retirement, accounting for one major expense. Property taxes are another of the biggest contributors. Of course, those who don't own are still paying rent, and both renters and homeowners are likely to be paying for renter's or homeowner's insurance policies.
But the T. Rowe Price report also makes note of smaller purchases that add up. Retirees spend often on housekeeping, laundry, household furnishings and cleaning — goods and services that retirees tend to pay more for as they age and either don't want to or can't perform them for themselves.
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