What are the 5 most common places retirees spend their money in retirement?

Ralph
00:00:00

Have you ever wondered where your hard earned retirement savings might actually go once you've left the workforce? Imagine this, if you will. You're planning a road trip without planning for gas and tolls. Perhaps you've been planning for retirement.

You're thinking about, have I saved enough? Will I have to live like a hermit? Will I be able to even enjoy the time I worked so long and so hard to reach?

And listen, these are tough questions and we need real answers. Well, stick around because were about to uncover the five most common places retirees spend their money in retirement.

Listen, we got to discuss this so you can be prepared and not be caught off guard. And let me tell you, some of these might not be what you expect.

Narrator
00:00:39

Welcome to the Ask Ralph podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:01:08

Now, in yesterday's show, we talked about how do I effectively embrace God's gift of rest? And listen, we all need rest. I need some rest today. Rest is a gift. It's not something you have to earn. So, I want to remind you, if you missed that, go check out all of our episodes are right there on our website.

Now, before we get into today's episode, I'd like to take a moment to share something personal with you. My mother-in-law, Dianne Bethard, is currently battling the late stages of Alzheimer's disease. In light of this, I've assembled a team representing the Ask Ralph show to participate in the upcoming Alzheimer's walk here in Wilmington, Delaware. Now, if you listened last week, I messed up. I mentioned that it was the day of the walk. Well, clearly, I had my dates messed up. Sorry about that. For those of you in the area, we'd be honored if you join us this Saturday, October 19th. And if you can't become a member of our team, you're still able to support the cause.

We've set up a donation page, and you'll find a link in the show notes. Now listen, every contribution, no matter the size, brings us one step closer to defeating this devastating and horrible illness. If you know anybody or any family that's going through this, it is brutal. So I'm going to leave you with this. Your support means the world to us and to the millions. I'm talking about millions who have been affected by Alzheimer's because I know working together, we can make a huge difference.

Well, now, let's hear from one of our listeners. This comes to us from Betty in Florida. And Betty writes this. "Dear Ralph, I'm approaching retirement in a few years, and I'm starting to worry about how my spending might change. I've been diligently saving, but I'm not sure if I'm prepared for the reality of retirement expenses. Can you shed some light on where retirees typically spend their money? I want to make sure I'm not caught off guard and can enjoy my golden years without that financial stress." Betty, what a great question. I can hear your concern, and it's a common one. Many of us struggle with this. We're anticipating what our spending patterns might be in retirement. And listen, you're not alone in this, and it's great that you're thinking about it now.

And before we jump into the answer to Betty's question, remember the whole point of the Ask Ralph show is to answer your questions. So if you've got that burning financial question or something you want an answer to, send it in. You can do that by going to justaskralph.com. Who knows? Your question might be featured on a future episode.

You know, Betty, your question today reminds me of a beautiful verse from the Bible. It comes from the book of Matthew 6:34. And this is Jesus speaking. This is what he says. He says, "Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble on its own." And that is a truly beautiful piece of scripture. And it's one that really is reassuring to all of us because we all struggle with these concerns, and it reminds us while it's important to plan, we all got to plan for the future; we shouldn't let that planning consume us and that worry consume us. We got to trust in God's provision and focus on making wise decisions. Because here's the truth. It's all about finding that balance, that balance between trust and faith, while making wise decisions. And that's what this show is all about. Balancing faith and finance.

So let's get started with answering that simple question. What are the five most common places retirees spend their money in their retirement? So, let's explore this together. I'm going to share some stories of some clients who went through this, and you're going to be surprised by the changes that they uncovered in their spending patterns. And the first one, this is by far the biggest one. It's healthcare. And it's a hidden cost for a lot of people. They don't think about how much they're going to spend on health care costs.

So let me tell you about my client, Tom. Now, Tom's a retired high school teacher. The funny thing is, Tom was a math teacher, and he was absolutely shocked when he realized how much he was spending on healthcare, and this is in his first-year retirement. And he says to me, he says, Ralph, I thought Medicare would cover everything. That's what he'd been told. He said, but the out-of-pocket costs are much higher than I expected. He said to me between my prescription medications, some dental work, and a couple of unexpected hospital visits, I spent nearly $12,000 on healthcare last year. That's his first year of retirement. And Tom said, he said, Ralph, this experience has taught me the importance of budgeting for healthcare expenses, and he's a retired math teacher.

He understands budgeting. But he also said, Ralph, you really need to talk about some supplemental insurance options, and that's what we're going to do. I'm going to be talking about these supplemental insurance policies later this week on the show. Also had a good friend, Craig, who mentioned that we should do a show on that. So make sure you don't miss that later in the week. So we've covered healthcare. Let's look at number two. This is the second biggest expense, and that's housing. A lot of people say to me, Ralph, you're crazy. I've already paid off my mortgage. I'm not going to have this big housing costs. But here's the thing you got to understand. Housing costs can still be significant in retirement. Let's say, my client, Linda, the librarian.

Now, she's retired at this point, and she was surprised how much she was spending on home maintenance and property taxes. And see, Linda had recently paid off her mortgage, and she told me that she had always paid her property taxes as part of her mortgage. So when she got that bill for the property taxes the first year, she was shocked at the cost. She said to me, she said, Ralph, I never realized how these costs could add up. Now here, she's talking about repairs when she said last month alone, it's just one month, and she said, I had to replace my water heater.

I had to fix a leaky roof. Both of those things cost me well over $5,000. And here's the thing. I just got my next year's property taxes and they're going up again. And so, what does Linda learn? Linda's learned to factor these ongoing costs into her retirement budget. Now Linda is actually thinking about downsizing. She wants to look for something smaller and low maintenance. She wants something she can easily manage. And it's a funny story, but I remember my mom having to tackle these projects based on what she said, Ralph. This house is what I commonly call the money pit because she was going through the same thing.

The leaky roof, the gutters were coming down. All kinds of little odds end that people don't plan for those in retirement. Let's look at number three and that's travel and leisure. Now, when you're working, you might be looking forward to traveling, but the thing you got to understand is those costs add up quickly, and here's the sad part. You finally got time to travel, now you got to consider those costs. So let me introduce my clients, Bob and Mary. Now they're a retired couple. They had dreamed of seeing the world. They talked about all the beautiful places they wanted to go. They had spent years planning all the places they wanted to see and the adventures they would take.

It was what they talked about in the morning when they were eating their breakfast, and then after dinner, they had these discussions about going to Rome and going to Australia and going to see all these other places all around the world. But the thing is, they were surprised how their hobby was eating into their savings.

I remember Bob and Mary came in, and Bob said to me, he said, Ralph, we took three international trips in our first year of retirement. And we spent almost $30,000. Now look, the trips were amazing. They had pictures; they pulled out their phone. They show me these beautiful pictures. And they said it was amazing. But Ralph, we quickly realized we need to be more strategic about our travel plans to make our savings last, because if they were going to spend 30,000 a year on vacations, they were going to run out of money. So, Bob and Mary learned to balance their travel dreams with their economic reality. And they told me, they said, Ralph, we found some budget-friendly travel sites, and we're starting to use reward programs so they can still travel, but they just got to be diligent in planning those things, in balancing their dreams with their reality.

Let's look at number four. And this is one nobody wants to talk about. And it's often overlooked in the area of retirement spending. Let me tell you about my client, Susan. Now, Susan was a retired nurse. Most nurses that I know, they always want to help people. Susan was no different, but the problem was Susan was surprised to find herself helping her adult children financially more often than she had ever anticipated.

She said to me one time she said, Ralph, I love being able to help my kids, but I didn't realize how much it would impact my retirement budget. She said, Ralph, last year, I helped my daughter with a down payment on her house, and I love doing it, she said. And I contributed to my grandson's college fund. But here's the problem, Ralph. It was nearly $20,000 that I hadn't planned for. So we sat down, we talked about it, and Susan had to reassess her budget, and she had to have an honest conversation with her children about what she could realistically afford to contribute. And here's the deal, folks. These are vital conversations. These things can get so emotionally charged, but if you have these conversations with your family, you can reduce the emotions which goes along with the economic realities.

You got to say to your kids, listen. When I was working, yeah, I could afford to help you a little bit more. But now I'm not working anymore. I've got to save my money for retirement. So I can't help you as much as I used to but have those conversations. And last but not least. Number five. Food and entertainment. And listen, who doesn't like to eat, and who doesn't like to be entertained? And see, the thing is, many retirees find they're spending more on dining out and entertainment than they did while working. I remember talking to my client, John. Now John's a retired accountant. And he told me, he said I was surprised at his own spending. He said, I thought I'd be spending less on food in retirement. But I'm actually spending more, and here's what he said.

He says, because I have more time to go out and enjoy meals with friends. And he said to me, he said, Ralph, between restaurant bills, concert tickets, and golf club memberships, I'm spending about $1,000 more per month than I did when I was working. And see, this is something I hear all the time from many of my clients. And it makes sense if you think about it. They're not working; they've got more time to do things. It's just sort of an obvious thing, but people don't think about that. What I have found in my practice is most of my clients spend more in retirement in general than what they were spending when they were working.

So what did John have to do? John had to learn to balance his desire for an active social life. He had to cut back a little bit on those golf outings, and those eating out events and stick to his budget. And John was good at budgeting. Well, what do these stories tell us? These stories highlight the importance of anticipating and planning for these common areas of retirement spending.

So, you know, good old Ralph wants to leave you with some action items you can take to be prepared. I don't want to just give you all this news and say, oh, this is grim and terrible and all you, here's where you're going to spend your money because there are things you can do to prepare for it.

Number one thing. Yes. I'm going to talk about budgets. And the most important thing you can do is create a detailed retirement budget that includes all of these areas of potential spending. You've got to be realistic in planning out what your retirement is going to look like. Just like we're taking a trip.

If we take a trip, we don't have a plan of how we're going to get there. We don't have a plan of how much it's going to cost us for fuel, how much it's going to cost us for tolls and eating along the way. If you don't have those plans, you're not going to make it.

Number two thing I'm going to tell you to do. Consider long-term care insurance and insurance in general. Like I said, I'm going to be talking about that later in the week. Some of the supplemental policies you might want to consider so you don't get stuck with those things that you weren't expecting. Like the client, I said that he had those $12,000 in his first year of medical expenses. There are some things you can do to mitigate that.

Another thing you've got to do. You got to look at downsizing or relocating to reduce those housing costs, like our librarian friend, Linda. I just want to think she's really considered now. She said to me, Ralph, I got this big house, two stories, my master bedroom's on the second floor. So there are some economic realities, and there are some just physical limitation realities.

She's looking for a first, yeah, first-floor master bedroom, maybe with a ranch house or maybe even an apartment or a condo where she can have an elevator. Another thing you've got to do. And I'm telling you, I am not saying you can't live your life. A lot of my retired clients say, Ralph, I work so hard. I put away all this money. I want to enjoy it. But the thing you've got to do is you've got to plan for travel and leisure activities. You got to be realistic about that budget and really put into there what you can afford. Maybe that means you have to spread them out over a couple of years. That's just the economic realities.

Number five. I think I stress this a lot, but you got to have those open conversations with family members about financial expectations in retirement. You can't let that emotional connection take away from your retirement goals and retirement plans. Now, sometimes, you might need to consider part-time work or consulting to supplement your income if needed. Once you see what retirement is actually going to cost, maybe you lay it out, and you're like, you know what, Ralph, I can't do this on what I planned. And that's why it comes down to the last thing I say is do a comprehensive cost analysis. You got to look beyond the income tax. A lot of people get hung up on that.

They'll come and see me. They'll say, Ralph, what is my income tax going to be like in retirement? How much do I have to set aside for my pension income? How much do I have to pay in taxes? How about my social security? And that's part of the puzzle, and that's a big part of it. Don't misunderstand me. But when calculating your likely expenses, you have to look at those. These things are housing, food, transportation, and, like I said, the biggest one, healthcare. In that retirement state, you're going to have to plan for that. Look, it's all about being aware and the thing you need to understand is retirement spending isn't a one-size-fits-all all. Your spending patterns are going to depend on your unique situation.

Maybe you've got different goals. Maybe your lifestyle is such that you live like a hermit. You don't care about traveling. You're content to be around your family and do those things. Well, your thing, your particular planning is going to be different than that. But here's the key. The key is to plan ahead and be flexible.

As I've said before, I think I've said this a few times. I have found that my retired clients generally spend more in retirement, and it's a really simple equation: because they have time to do things and if they've taken care of their health, as I mentioned in other shows, they can do these things cause they got time, they got the desire, and they need to pay attention this because these things can really add up. Let me recap the main points of what we've covered today. We learned that healthcare, housing, travel and leisure, family support, food, and entertainment are the top five areas where retirees commonly spend their money. We also heard some real stories from real retirees who were surprised by their spending changes, and they learned some valuable lessons along the way. And my grandfather used to say this. Learn lessons from other people so you don't have to make the mistakes yourself.

So I hope you're able to take those lessons, Betty, and look at what they mean to those people. Plan for healthcare coverage. Plan for housing, plan for travel, plan for that family support; maybe you have some tough conversations with your family members. Now, maybe you've listened to all this, and you're feeling overwhelmed by retirement planning, or maybe you want to ensure you're on the right track.

A lot of people just don't know where they are. I can help you with that. I want to encourage you to schedule an appointment with me. I can help you create that personalized plan to manage your finances in retirement effectively. Maybe you're not even thinking about retirement yet. But you want to have somebody help you get off of that wheel of living paycheck to paycheck or that feeling like you're moving forward only to get pushed back. And you can book a call with me by going to askralph.com.

You'll see a banner that reads, "Book a call with Ralph." It's really that simple. Just click on that. Now, remember, I do charge a $150 consultation fee, but here's my guarantee to you. I'll refund it if we can't develop a plan that helps you feel confident about where you're going with your finances. That's how committed I am to helping you succeed.

So don't let another day go by feeling uncertain about your retirement or your finances in general. Schedule a consultation today, and let's work together to bring balance and purpose to your financial and spiritual life in retirement. And before I forget, be sure to tune in to tomorrow when we'll be discussing what are some of the best online deals banks are offering for opening a new account?

I'm going to do a deep dive on some of these great offers that some of these banks are offering. I'm going to talk about bigger pictures. You know what you should be looking for in a banking relationship. So that's an episode you could potentially save you money, so you don't want to miss it. And remember this. My passion is to help you achieve financial success.

I want to see you live out your dreams and grow in your faith. And I know working together, we can master your finances from that Christian perspective. So, as I always say, stay financially savvy, and God bless you.

Narrator
00:16:52

Thank you for joining us on the Ask Ralph podcast. And with a simple click to subscribe, we'll invite you back to our next episode. And remember, financial issues don't have to be complicated, just ask Ralph. The information contained in this episode of Ask Ralph is based on data available as of the date of its release.

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