One of the most common concerns of senior citizens is their retirement. Will I have enough? When is a good age to retire? How should I budget my savings? But by far, the biggest retirement mistake is simply not saving enough. Here a few retirement costs to keep in mind.
The largest expense in a retiree’s budget is their housing costs. Seniors over the age of 50 years old generally spend between 40 to 45 percent of their income on housing, utilities, home insurance, and other home maintenance bills. While housing costs are unavoidable, there are a few things you can do to try to reduce your cost. One way to reduce your housing expenses is to either downsize or move to an area that is less expensive. Another way to help with the costs of housing is to take out a reverse mortgage. A reverse mortgage allows seniors over the age of 62 to access the equity in their home and use the tax-free money however they see fit. For more detail information on reverse mortgages click here.
Health care is an area of expenses that always seems to increase as you age, even if you are in good health. It is expected that even if you retire at age 65 (in good health), you can anticipate around $220,000 in health care costs well into your 80s. These costs fail to include caregiver costs, nursing home fees, or simple over-the-counter medications like pain relievers all of which could quickly amount to tens of thousands of dollars annually. One way to reduce your spending is long-term care insurance. Now this will initially cost you more, but in the end it will save you money (especially with assisted living or extensive nursing care).
Although you are no longer paying taxes on your payroll, you are still required to pay tax on a portion of your Social Security benefits*. If you are planning on moving during your retirement at all, consider researching which states give tax incentives to those who are retired.
If you are over the age of 62, you have the financial option of a reverse mortgage. A reverse mortgage eliminates your monthly mortgage payment. The program works by allowing you to put to use the equity you have built up in your home. Here are a few of the major benefits to the program:
- No Monthly Mortgage Payments**: A reverse mortgage does not require you to make any monthly mortgage payments. You are still responsible for property taxes, insurance, and home maintenance.
- You are Always the Owner of Your Home***: Another benefit of a reverse mortgage is that you still own your home. One common misconception with the reverse mortgage program is that the lender will own your home. However this is a myth. By obtaining a reverse mortgage, you are not in any way changing the title of your home.
- You Still Have the Option of Leaving Your Home to Your Children: A reverse mortgage does allows your heirs to keep the home if they choose to. However, they will have to refinance the reverse mortgage and turn it back into a traditional mortgage. If they decide to sell the home, they can keep the difference between the loan amount and the proceeds. For the homeowner’s protection, reverse mortgages are non-recourse loans. This means that in cases where the proceeds are not enough to pay off the full value of the loan the lender absorbs the difference. You are never responsible for more than the appraised value of the home. For more information on reverse mortgages click here.
*May affect SSI or Medicaid. Please consult with your financial advisor.
**Homeowner is still responsible for taxes, insurance, and property maintenance.
***You remain responsible for counseling costs, taxes, insurance and maintenance expenses.