Top Living Expenses Seniors Underestimate After Retirement

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Top Living Expenses Seniors Underestimate After Retirement

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Top Living Expenses Seniors Underestimate After Retirement

10,000 baby boomers reach the age of retirement every single day in the U.S. A recent study done by LIMRA Secure Retirement Institute found that over 25% of retired seniors underestimated what their basic living expenses were going to cost. Over 30% of newly retired Americans feel they won’t be able to live the retired baby boomer lifestyle they once dreamed of and spent their entire working career saving for.

Other expenses that retirees found to be higher than they expected was long term care and healthcare costs. We automatically assume our expenses will decline once we stop working. Yes, you’ll be able to reduce some expenses, but you’ll also find others will increase. Below, we’ll discuss costs for basic living expenses, long term care and healthcare costs post retirement.

Basic Living Expenses

Basic living expenses include housing, taxes and entertainment. Even though many seniors are mortgage free by the time they retire, they still end up having more maintenance expenses then expected. The annual maintenance on a home can be up to 4% of its value. Property tax is another expense that most retirees are unprepared for. Unfortunately, many homeowners don’t realize their property taxes can increase over time, leaving them in a financial crunch come tax season.

Once you retire from your 9-5 job, you’ll have tons of extra free time. So, we’re unsure why seniors tend to think their entertainment costs will decrease after they retire. Finding ways to fill in your new spare time can quickly add up. Whether you enjoy traveling or a weekly afternoon outing to see a matinee movie, you should factor these costs into your budget. Many seniors are taking advantage of the new ride sharing platforms, like Uber and Lyft, to help get them around town!

Long Term Care Expenses

Nobody likes to imagine themselves living in an assisted living facility or nursing home. However, over 70% of seniors find themselves needing this type of long term care. If you don’t financially prepare yourself for these types of expenses, you won’t be able to afford the care you need. Depending on where you live, the average cost of assisted living facilities can be over $40,000 per year, the cost of home health care can be around $50,000, and a nursing home can cost over $80,000 per year.

Healthcare Expenses

A healthy 65-year-old on average spends $200,000+ on their medical costs after retirement. As you age, naturally your healthcare cost will increase. Of course, this depends on how healthy, or unhealthy, you are. Many retirees receiving Social Security automatically assume they’ll be fully covered once their Medicare benefits kicks in. Unfortunately, that’s not the case. Medicare only pays for 80% of your healthcare expenses, leaving you responsible for many out of pocket costs such as deductibles, copays and coinsurance.

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Many Medicare beneficiaries choose to add secondary Medicare supplement coverage, commonly referred to as Medigap plans, in addition to their Original Medicare to give them peace of mind. These supplement policies are offered through private insurance companies and cover those out of pocket expenses that can quickly add up.

A sure way to ruin your retirement dream lifestyle is to underestimate your living costs. Having a well thought out retirement plan, prior to retiring, will protect you and your family’s finances and allow you the financial freedom you always imagined.

Top Living Expenses Seniors Underestimate After Retirement

Need Assistance? Call 1-855-215-3884

Information Gap on Assisted Living Costs Hits Families With Smaller Budgets Hardest

You’ve probably noticed how hard it is to find how much assisted living costs. Believe it or not, the lack of price transparency isn’t just a marketing tactic. Still, it leaves many unprepared for the expense. We show that families with modest budgets are especially likely to underestimate the cost of assisted living. Then we offer tips on how providers and consumers could address the problem.

Many Will Need Assisted Living, but Few Understand Its Costs

By 2030, nearly 20 million Americans will be age 80 or older. Most of them will need long-term care. The trend toward smaller family sizes will leave them with fewer family caregivers. Many will turn to private-pay assisted living, which offers apartments plus meals, light housekeeping and assistance with daily activities. Despite the growing need for assisted living, we find that many families underestimate the expense.

Based on data from over 40,000 families, we estimate that over 40% of consumers spend more than the high end of their anticipated assisted living budget range.

When families call A Place for Mom, our Senior Living Advisors ask them about their anticipated monthly budget for senior housing and care. Because we keep in touch with families until they move into a community, we can compare their actual first-month rent and care charges to their initial budget. Based on data from over 40,000 families, we estimate that over 40% of consumers spend more than the high end of their anticipated assisted living budget range. Half of the families who contact us have a budget range with a midpoint of at least $300 less than the median cost of assisted living.

Families With More Modest Budgets Are More Likely to Underestimate Assisted Living Costs

74% of consumers with an anticipated budget from $1,500 to $2,000 per month end up spending above that range.

Seventy-four percent of consumers with an anticipated budget range between $1,500 and $2,000 per month end up spending above that range. On average, they spend $915 more per month than the high end of their budget. In contrast, 24% of consumers with a budget range between $5,000 and $6,000 per month underestimate their costs.

Many consumers with smaller budgets are simply uninformed about the real costs and could actually afford much more than they state. Others truly have limited budgets, but aren’t poor enough to qualify for government programs. These consumers would potentially benefit from easier access to information about pricing for currently available floor plans at specific assisted living communities. Unfortunately, that information isn’t often available.

Price Transparency Is Coming to Assisted Living

Companies like Redfin and Zillow aggregate real estate listings and show them on a convenient map. Aggregating listings is no small technological feat, and everyone agrees it has utterly transformed the experience of home buyers and sellers. By comparison, price transparency is rare in the senior living industry. Families usually must visit a community for a quote.

“Today’s senior living consumers increasingly expect to obtain pricing information online,” says Dan Willis, senior vice president of partner services at A Place for Mom.

While providers don’t list prices in part to encourage tours and avoid sticker shock, the lack of price transparency is not simply a marketing tactic. Care needs vary widely among prospective residents, who often do not understand those needs upfront. This makes it hard to list prices accurately without risking information overload. Still, demand for price transparency grows.

“Today’s senior living consumers increasingly expect to obtain pricing information online as a critical part of their search and decision process,” says Dan Willis, senior vice president of partner services at A Place for Mom, “As this trend accelerates, senior living providers will need to present their pricing structures in a way that is easier for these committed consumers to access and understand.”

“We track the behavior of consumers across senior living websites, adds April LaMon, co-founder of Lead InSite, an online behavior research firm that focuses on senior living. “Pricing information and transparency are a key aspect of the pre-research process. When this information is readily accessible on a website, consumers move through the decision process more purposefully.”

Just as Redfin and Zillow solved the listing aggregation problem, assisted living providers will someday find a way to post pricing online without causing information overload. If providers made pricing more transparent, consumers could more effectively plan their retirement, and senior living could remain relevant to increasingly savvy consumers.

Until then, what can families do to better plan for assisted living costs?

Tip for Consumers: Tap Into Online Resources Showing Typical Costs

Tools like the Senior Living Cost Index (SLCI) and Genworth Financial’s Cost of Care Survey show local cost estimates for senior care. Estimates vary due to varying methods and sources, yet they provide enough information to aid retirement planning given typical costs in your area. For example, the SLCI shows that consumers who live in Seattle, Washington, could have save over $6,800 (13%) per year by moving an hour south to Tacoma. When making long-term plans, it’s safe to assume about a 3% annual increase in local prices, although prices are growing faster than that in some key markets.

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