BMA FINANCIAL: Key Cost Areas for Estimating Future Retirement
BT Staff
By Steve Crawley, PhD, Executive Director • BMA Financial
The ultimate variable in knowing how much you need to save for your future funded ministry — i.e., retirement — is having a good grasp on your future expenses.
Daniel May, a Certified Financial Planner, shares about five key cost areas to focus on when estimating your living expenses in retirement:
• Healthcare — According to Fidelity, an average single person retiring in 2023 will need approximately $157,500 saved, after taxes, to cover all their medical expenses in retirement (for a married couple, the number is simply double, $315,000). This estimate assumes you retire at age 65 and are eligible for Medicare coverage. More importantly, it does not cover health-related expenses like most dental services and long-term care.
• Long-term care — Paying for long-term care can potentially be one of the costliest expenses in retirement. The average stay in a care facility is around 22 months, and, depending on the amenities and level of care provided, the average cost ranges from around $5,000 to $10,000 per month. If you do the math, long-term care could easily end up costing you hundreds of thousands of dollars in retirement. What’s so frustrating about estimating long-term care is just how drastic differences in costs can be. It is estimated that one-third of 65-year-olds today will never need long-term care, however the rest will; and 20% of all 65-year-olds will need care for longer than five years.
• Housing — We like for everyone to enter retirement debt-free, but you may be renting, and even if you own your home, you have other housing-related expenditures. These shouldn’t be extremely difficult to estimate if you have an idea of where you’ll be living in retirement. If you own your home, housing costs are even more fixed and increase only as your property tax, utilities, homeowner’s insurance and other housing expenses go up. Historically, rents increase about the same percentage as inflation overall.
• Taxes — Just how much will your assets be taxed in retirement? Will your Social Security income be subject to taxation? If most of your assets are in pre-tax retirement accounts such as an IRA, what you end up with, after taxes, could be significantly less. Conversely, if a large percentage of your assets are in tax-free accounts like Roth IRAs and HSAs, your taxes in retirement may be very low. If you are participating in the BMA America 403(b)(9) retirement plan and are a licensed or ordained minister, you qualify for tax-free housing allowance distributions that can greatly minimize your tax liability.
• Other living expenses — Housing, healthcare, long-term care and taxes are some of the greatest “unknown” expenses in retirement, but there are plenty more you need to be thinking about. They can vary greatly from person to person: How much do you want to travel in retirement? Do you plan to eat out often at restaurants or do you like cooking at home? Do you have hobbies (or anticipate developing hobbies) that might be costly? Do you want to leave money to relatives or charitable causes?
Estimating what your expenses will be in retirement is daunting, more so the further away you are or the longer you plan to be retired. Let us know how we can help on your retirement plan journey! Read the full article, How To Estimate Future Expenses in Retirement at fyi.moneyguy.com/p/how-to-estimate-future-expenses-in.
Do you have questions? We are here to help you with this subject as so much more, contact us today at bmafinancial.org/contact or (844) 262-8637.