The conversation discusses common areas where retirees tend to overspend and offers strategies to manage these expenses effectively. Key areas of overspending include healthcare costs, travel and leisure, home renovations, helping family members, and lifestyle inflation. Practical tips such as maintaining a healthy lifestyle, budgeting for travel, getting multiple quotes for home repairs, setting financial boundaries with family, and tracking discretionary spending can help retirees stretch their retirement dollars further.

Transcript:

Austin, people thinking seriously about retirement struggle to know what their actual costs are going to be.

Some things like closer to work or gas for commutes go down, but others like travel or dining often go up.

What are some of the things we see retirees overspending on the most and what can they do to mitigate that spending and ensure their retirement dollars stretch as far as possible?

Yeah.

We’re certainly not here to tell people how they should spend their money in retirement, but we certainly also don’t want to see people overspending on categories because retirement’s meant to be a one-way door.

If you’re overspending, you might not have enough to get through it and nobody wants to have to go back into the workforce after experiencing the joy of retirement for 10 years or more.

So here are things that we are seeing retirees constantly overspend on and ways to mitigate that.

Number one is healthcare costs.

So according to Fidelity, on average, a retired couple aged 65 last year needs about $300,000 saved after taxes to cover healthcare expenses in retirement.

That is a staggering number.

So one way to avoid overspending here is to invest in a good Medicare Advantage or supplement plan to help cover additional costs, not including in your standard Medicare.

Additionally, simply maintaining a healthy lifestyle and potentially reducing your medical expenses is one of the greatest ways to make sure that $300,000 really does last.

Now, if you’re lucky enough to have an HSA or a health savings account, you should fund it because that is a bonus benefit of also being a fantastic retirement account in general.

So item one is healthcare costs and continue to contribute to your HSA if you can.

Consider getting Medicare Advantage or a supplement plan to cover additional costs and stay healthy.

Number two, travel and leisure.

Retirees can spend an average of $11,000 per year.

Now, that was actually according to 2019 surveys.

So that number is probably closer to $13,000 or $14,000 today with retirement.

And that survey was done by Transamerica Center for Retirement Studies.

So one way to avoid overspending on travel and leisure is to set a specific travel budget and look for discounts and deals.

And consider off-peak travel times, meeting travel reward programs, and planning less expensive vacations.

And one of the nice things about being retired is that you can travel whenever you want.

Every day is a vacation.

So travel off-peak where the crowds are less demanding anyway, and you’re getting a better deal on your trip.

So consider going off-season to some of these nice travel destinations.

Your money goes further, and hey, it’s not as crowded.

You’re retired. You can go whenever you want.

Item number three is home renovations and maintenance.

So there’s a lot of data here that suggests that retirees spend about $2,400 annually just to maintain their home on home renovations.

Let’s just round that up to $3,000 because we know a lot of items going into your home have become more expensive the last few years.

So how do you avoid overspending and sticking to that roughly $3,000 a year?

One way is to prioritize essential repairs and renovations first.

Always get multiple quotes.

I’m blown away every time I get multiple quotes for any service on my home.

There’s always one that stands out as being substantially cheaper than the other two.

So always get multiple quotes.

Consider DIYing some smaller projects yourself.

Energy-efficient upgrades will also save you money in the long run.

And this one is really important.

Prior to retirement, do what we call a home tune-up.

Get all of the big items and major systems like a roof and appliances, your furnace, get them serviced or replaced before you enter retirement.

So there’s no big-ticket surprises when you enter.

A lot of these systems will last 10 years or more if well maintained.

So get them all done before you enter retirement.

They may very well last all the way through and you’ll avoid getting that $10,000, $15,000 surprise five years in that you weren’t budgeting for.

Item number four that retirees constantly overspend on is helping family members.

And this one’s a little sad, but this is your retirement we’re talking about here.

And a 2020 study by AARP found that half of retirees provide financial support to family members.

And almost no one in their retirement budget plans to be handing out money to family members.

They might plan for things like travel or home insurance and food and vacations.

But how often do you see a line item for gifts to family?

And with an average annual support amount of $6,500, this can be a real shock to people who are not expecting it.

So the tip for overspending here, you just have to set clear financial boundaries with your family and communicate with them.

This is your retirement.

You’ve saved your money for your retirement.

Let your family members know what you’re willing to share or donate to them.

Even if that number is zero, those clear boundaries will save you so much frustration and potential overspending in the future.

Now, the last one here is lifestyle inflation, the classic hedonic treadmill.

Now, discretionary spending such as dining out, entertainment or hobbies, it can add up to $5,000 or more per year based on data from the Bureau of Labor Statistics.

So how do you avoid overspending?

You now have all this time on your hand.

You want to do more of your hobbies.

How do you avoid overspending on them?

One is simple.

Just create a basic monthly budget that includes discretionary spending limits and track your expenses each month to make sure you’re staying in that budget.

And I would also recommend, hey, for things like dining out, set aside dedicated date nights.

Make them special.

It’s something to look forward to.

Say we go out on a date night every Wednesday or every Friday or whatever the case may be.

But that prevents that from becoming a norm and going out every evening.

So set aside a budget.

And I recommend putting some of your hobby time or your dining out time on the calendar.

It gives you something to look forward to.

And it prevents it from becoming your normal everyday experience.

Austin, you’ve covered a lot there, so let me just quickly bullet point it for everyone out there.

Healthcare costs, maintaining a healthy lifestyle.

If you’ve got an HSA, fund it.

Travel and leisure.

Look at traveling off times because you’ve got all the time in the world.

You can save money.

Home renovations and maintenance.

Make sure to get competitive bids.

Helping family members.

Set boundaries.

Lifestyle inflation.

Track expenses regularly.

I think with these small tips as you noted, people can really stretch their retirement a lot further.

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