Benefits After Retirement

When you retire, you may lose access to your employer-sponsored benefits, like health coverage. This can be an especially difficult change if you retire early. Americans are eligible for Medicare at age 65, but many retire before that. This means you’ll be responsible for the full cost of your insurance premiums for at least a while.

This probably means that you’ll need to adjust your budget to make it all balance. 

Benefits Changes in Retirement

Some employers will let you continue to receive benefits after you retire. These plans are typically called retiree health insurance, and they’re designed to keep you ensure until you’re able to receive Medicare. However, you’ll probably need to pay the full premiums yourself. 

You can also opt for up to 18 months of health insurance coverage with COBRA, though you’ll need to pay 100% of the premium cost plus a 2% administrative fee. 

Depending on where you live and the insurance coverage you’re looking for, you might want to look into Affordable Care Act (ACA) Marketplace health coverage. In some cases, the costs of these plans will be lower than continuing with your employer insurance plan.

However, no matter what you choose, there’s a good chance you’ll be spending more for your benefits than you did while you were working.

The truth is that not only do will insurance costs likely increase once you’re no longer covered by an employer-sponsored plan, but overall healthcare can become more unpredictable as well.

As you age, you’re more likely to have healthcare costs and medical treatments. Depending on your plan, the deducible, and your coverage amount, that might mean paying some of these expenses out of pocket.

How to Budget for These Costs

One of the most important things you can do in retirement is have a realistic budget that you can stick to and that makes sense for your financial situation. This is especially important when it comes to affording healthcare costs, since these costs are important and you don’t want to go without health coverage because you spent too much money elsewhere.

The first step is to look at what you’re spending now. Add up all your expenses over the course of a month. Include everything you spend money on. You can track this as you go or look at credit card and bank statements to determine your spending. Put it all in a chart or spreadsheet so it’s easy to see everything in one place.

You’ll then want to classify each cost as essential or discretionary. Essential expenses are things that you must have, such as food, shelter, utility, and healthcare costs. Your other expenses (like travel, entertainment, etc.) are discretionary costs. These are things that are nice to have but that you can live without.

Know that you will always have other discretionary costs that don’t come up each month. For instance, consider birthday gifts for friends and family, yearly vacations, and other costs that aren’t monthly expenses but that you’ll need to budget for. It can be a good idea to add up all of these expected costs throughout the year and then divide by 12 to determine the average monthly cost.

The next step is to compare these costs to your monthly income. Look at how much you are able to spend each month. This amount will depend on the retirement income sources you have available and how much you have saved. 

Now compare your average spending in one month to your average income. Does it make sense? Are you able to afford everything without cuts? If you are, that’s great! If you’re not, you’ll need to adjust your budget. 

Adjusting Your Budget

As mentioned, the first place to look for budget cuts is in discretionary expenses. Things like entertainment, eating out, or travel can be reduced without seriously impacting the rest of your life. Start by reducing the areas that are the least important to you and keep going until you can make it work.

The next place to look is at your essential costs. These expenses are necessary, but that doesn’t mean they can’t be changed. Sort your essential expenses into fixed and variable costs. Fixed costs can’t change easily. This means your rent or mortgage, your insurance premiums, and any loans you are repaying. There isn’t much you can do to reduce those costs. Utility costs are often considered fixed as well, even though these can sometimes vary depending on your usage.

Your variable costs are easier to reduce. For instance, you need to spend money on groceries, but you can adjust what you spend. Good ways to reduce grocery spending are cooking from scratch rather than buying prepared meals, shopping sales, clipping coupons (either physically or digitally), and cooking more vegetarian meals to save on buying meat. When you’re shopping for produce it helps to shop in season or buy frozen.

Other variable expenses can be cut in the same way. Look at what you’re spending and see if you can make adjustments to lower your costs. 

Other Ways to Make It Balance

Reducing your expenses isn’t the only way to make your budget balance. You can also work to bring in additional money. There are a few ways to do this.

Start a Side Hustle

Just because you’re retired, it doesn’t mean you can’t do a bit of work here and there. A lot of retirees turn their hobbies into side businesses to earn some extra money. If you have a skill such as woodworking, art, or other hobbies that could earn you some money, consider starting up a side hustle to help make sends meet. 

Consider Consulting

Depending on your experience and what you did at work, you may be able to earn some extra money through consulting. Local businesses, schools, libraries, and other institutions may be willing to pay experienced professionals for their consulting skills. 

Sell Extra Items

Many retirees try to reduce clutter around their homes. Why not make some extra money at the same time? If you have items sitting around gathering dust, but that are still in good or usable condition, think about selling them either online or through a physical yard sale. 

You may even want to consider selling your vehicle, especially if you and your partner both own cars. If the two of you are retired, you may no longer need two vehicles. Selling one won’t just get you some extra money, but it will also save you from paying for insurance, gas, and other costs for two cars. 

Consider Downsizing

Selling your home and moving to a smaller property or a more affordable area can be a good idea in retirement. If you’re having trouble making your budget balance and worried that you won’t be able to afford your healthcare costs, moving could make sense for you. 

Moving to a smaller or more affordable home will likely earn you some money up front and it will probably reduce your monthly costs as well, since property taxes and maintenance costs will likely go down.