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You've been dreaming about your golden years for ages, but have you fully prepared for the financial aspect of retirement? While you'll have many of the same bills in retirement, some expenses change, and the way you spend your money might shift. Understanding common retirement expenses can help you plan while you're still working, and it can help you stretch your retirement savings to avoid running out of money. Explore common retirement expenses and how to plan for them below.

How Much Will You Spend?

Fidelity suggests planning to spend between 55% and 80% of your current annual income once you retire. If your income from your job is $100,000, you would likely need between $55,000 and $80,000 per year in retirement. Estimating at the high end of 80% gives you a buffer in case your retirement expenses are higher than expected. Ultimately, your retirement lifestyle will determine how much money you'll spend. If you plan to travel regularly and stay active, you'll spend more than someone who stays close to home and spends their time on hobbies.

Common Retirement Expenses

After retiring from your job, you can also retire certain expenses, such as work clothes, work lunches at restaurants and commute expenses. However, you'll likely see your costs increase in other areas, such as healthcare and funding your retirement activities. Common retirement expenses include:

• Housing: If you're staying in your current home, your housing expenses should stay the same. If your retirement plans include downsizing, relocating or moving to an assisted living community, research the costs for your new housing. Don't forget to budget for the actual move.
• Medicare: Your Medicare coverage varies depending on your income and which coverage you choose. Part A is typically free, while Part B comes with a premium of $170.10 or more based on income as of 2022. Part C and Part D premiums vary depending on the plan you choose. You'll also have deductibles to meet when you use Medicare coverage, so estimate those expenses as well.
• Transportation: When you no longer need to drive to work every day, your transportation costs often decrease. You'll likely spend less on gas, public transportation and car maintenance. If you move to an assisted living community, transportation is typically included, which can save you more.
• Food: If you ate out for most of your meals while you worked, your food budget could decrease in retirement. One advantage of moving into Hickory Lane is the restaurant-style dining and flexible dining times you enjoy as a resident. If you're cooking for yourself, you can adjust your food spending and take advantage of senior discounts to save in this category.
• Entertainment and travel: After retirement, you have a lot more free time to fill. This often leads to new expenses for travel and entertainment. Residents of Hickory Villa enjoy a host of included amenities to stay busy, including exercise classes, scheduled outings and planned activities, which can save money in this budget area.
• Retirement savings taxes: Many common retirement accounts, such as 401(k)s and IRAs, are taxed when you withdraw the money. Understand how your retirement funds will be taxed when you take distributions. Estimating how much of your retirement income will go to taxes helps you budget more accurately.

Unexpected Retirement Expenses

You can also face unexpected expenses in retirement, such as necessary home or auto repairs. If you have children or grandchildren, you might find yourself paying for some of their expenses or helping them out of a difficult situation. Having an extra emergency fund can protect your retirement money while preparing you for these unexpected expenses.

Preparing for Retirement Expenses

Preparing for retirement expenses as soon as possible gives you more time to increase savings, pay off debt and handle other financial situations. The following tips can help you better prepare for your retirement expenses.

Consider Your Plans

You've likely envisioned your retirement years already, but it's a good idea to spend time analyzing exactly how you want your retirement to look. Ask yourself questions about retiring, such as:

• Where do I plan to live?
• How often will I travel?
• How will I spend my days?
• When do I want to retire?
• How much retirement income do I have?
• What expenses will I eliminate when I retire?
• What new expenses will I have?

Understanding how you want to live after retirement helps you estimate the costs to fund that lifestyle.

Create a Budget

Create a preliminary retirement budget before you leave your job. Figure out how much income you'll have after you retire, including Social Security, retirement accounts and other investments. Estimate the expenses you'll have based on how you want to live, and allocate your retirement income accordingly. If you come up short, consider ways you can decrease your expenses and increase your income, such as making larger retirement contributions before you leave the workforce.

Make Financial Changes Before You Retire

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Financial stability before you retire makes retirement expenses easier to handle. Building a large emergency fund gives you a backup plan if you face unexpected expenses, and dealing with debt ahead of time can help to decrease your financial burden. Going into retirement with less debt leaves more of your retirement funds to go toward regular living expenses.

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