What Factors Affect Cost of Living in Retirement?
Cost of living in retirement can depend on location, housing decisions, lifestyle, and economic conditions. Some of these factors are more controllable than others, especially for those who plan ahead. People preparing for retirement may want to make arrangements to have between 70 and 80% of their previous income available in retirement to maintain a comfortable standard of living, although it can be possible to live on less. It is important to be aware of how much money retirement savings, government benefits, pensions, and other sources of income will provide.
One issue is location. Some regions are more expensive to live in than others. Urban areas tend to have a higher cost of living in retirement, as do regions with extreme climates, where utility costs can be high for heating and cooling. Economically depressed regions tend to have lower costs of living due to the decreased purchasing power of residents. Sometimes international destinations come with a radical cost of living decrease, for retirees willing and able to move overseas.
Housing decisions can also be important. A big home is more expensive to maintain, and may come with high mortgage or property taxes, for people who own their homes. Big yards and amenities can also add to maintenance costs. Living in a small home can lower living expenses. So can completely paying off a mortgage before retirement, or using a tool like a reverse mortgage.
As adults age, they may need accessibility features in the home. If retirees plan ahead and make decisions like buying or renting homes designed for aging in place, they are less likely to require relocation after injuries or illnesses. Single-level homes, houses with shower bars and other aids for people with limited mobility, and homes with features like large light switches and easily controlled faucets can allow people to age gracefully and stay at home. In other cases, it may be necessary to consider an assisted living facility to handle seniors with more complex needs.
Lifestyle is another factor that can influence cost of living in retirement. People who primarily eat at home, do not attend expensive events, drive modest vehicles, and generally minimize expenses will need less money. They may also have more funds available for activities like travel and helping children or grandchildren with expenses.
Economic conditions also have an impact on the cost of living in retirement. The consumer price index provides general information about the purchasing power of currency at any given point in time. This can provide information about worsening economic conditions that may make life more expensive, and can help them identify regions where the cost of living is lower.
Another issue can be medical expenses. Retirees may be covered by insurance and government benefits, but these do not necessarily provide complete care. People may need to pay out of pocket for some services, medical devices, and prescriptions. These costs can mount quickly and may cause a spike in the cost of living in retirement.
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