How Will Your Finances Change As You Get Older?

The decisions you make now will ultimately dictate your future. This is very true, especially when dealing with finances. A person who is financially aware and savvy will have an increased chance at building a brighter future than a person who haphazardly spends money with no systems in place. While most young adults have the mindset that they have plenty of time to plan for their retirement and future, the truth is there is no time like the present.

Though in general, your finances decline as you get older, there are still expenses that you’ll need to be prepared for – on a much smaller income. You’ll need to be able to afford necessities such as housing, clothing, food, and medical expenses, along with things like entertainment, travel, and leisure activities. If you don’t start laying the groundwork now for retirement, chances are you’ll be working for a lot longer than you may have planned.

Below is a closer look at how some of your expenses will change as you age and solutions to resolve the matter.

1. Housing. Housing costs can be as much as 25-50% of your income. For those who are currently homeowners, paying your mortgage in a timely fashion and in full prior to retiring can help pave the way for financing opportunities in the future. For example, seniors aged 62 and older have the option to take out a reverse mortgage on their home.

This is essentially a loan taken out on the equity of the home that does not have to be repaid. This would give you money to add to your retirement income. Whether you’re in your 30s, 40s, or 50s, you can start searching for information online to learn more about a reverse mortgage. Reviewing all the information now can give you an idea of what you need to do to qualify for this type of mortgage in the future.

2. Health Care. This is an expense that will likely go up as you get older. This increase essentially is due to increased risk for illness and deteriorating health as we age. Even if you managed to obtain a good insurance policy through your pension package, you’re still going to have a great deal of out-of-pocket expenses to pay for. This can include copays for medical procedures, tests, and prescriptions.

You can minimize the costs of your health care expenses by getting healthy now. By eating a better balanced diet, keeping your scheduled doctor, dental, and vision appointments, and exercising regularly, you can decrease the chances of your health being compromised. This will reduce the amount of doctors’ visits you need and make your expenses a lot lower.

3. Taxes. Though you won’t have to pay income taxes once you’ve stopped working, you may be required to pay taxes on your Social Security benefits as well as any other income you have during retirement.

Work with a certified public accountant to help you find ways to reduce your tax bill each year. They can help you find credits and deductions that can lower the amount you owe to the federal government. It also helps to put a small percentage of your income aside just for taxes so that you won’t feel such a pinch when it’s time to pay.

4. Transportation. Your cost for commuting should drop significantly once you’ve retired, however, that doesn’t mean you won’t have a transportation expense at all. The cost of gas, insurance, registration renewals, and maintenance will need to be factored in.

You can make more effective choices now with your transportation that can make a big difference in the future. For instance, keeping a good driving record and a good credit rating keeps your car insurance premiums from increasing. Paying your car off before retirement eliminates the need for a monthly car bill. Keeping your car well maintained will help the vehicle last a lot longer, putting off the need to purchase a new one.

5. Entertainment. Your retirement is certainly not going to consist of you sitting in the house all day every day. You’re going to want to get out and enjoy yourself and explore a bit. Therefore, you’ll need to factor in entertainment expenses.

By learning savvy shopping habits now, you will find it a lot easier to afford the things you’d like to do in the future. Clipping coupons, asking about discounts, and planning ahead are all ways to save money on entertainment expenses. Also, placing a small amount of money into a savings account each week until you retire will give you a nest egg, which can be used to travel and just have fun.

Retirement might be the last thing on your mind if you’re still working on a daily basis. However, what must be understood is that time passes us by in a heartbeat. Failure to start preparing today for what is likely to happen “tomorrow” will ultimately leave you struggling when you should be enjoying the fruits of your labor. Hopefully this has given you some insight on what to expect and how learning to minimize life expenses now can make a huge difference in how you live during retirement.