What You Need to Know About Senior Living Contracts and Building Out a Retirement Budget
After decades of saving and investing, you’ve finally made it to the time you’ve been looking forward to since your first day of work: retirement. Now that you’re here, the best way to ensure all your hard work continues to pay off is by establishing a retirement budget. Financial planning can help you figure out the best way to protect your retirement savings while enjoying the type of lifestyle you want.
How Your Stage of Retirement Determines Your Retirement Budget
Retirement consists of four distinct stages, each with its own unique priorities. Here’s how each stage of budget cycle breaks down.
Pre-Retirement (age 50 to 62)
Age 62 is when people first qualify for Social Security payments. However, collecting Social Security at 62 is usually a bad idea because your future monthly benefits will be permanently reduced. In your 50s and 60s, you may still have major expenses ahead, like helping with college tuition or paying for a wedding.
During pre-retirement, it can help to use a retirement budget planner to lay out your income and expenses. Start with your estimated Social Security payment, which you can track with my Social Security account, then include any pensions and annuities you have. Once you’ve done that, take a look at your retirement savings accounts and determine how much you can take out each month to ensure it lasts through all the phases of your retirement.
Early Period of Retirement (Ages 62 to 70)
The second phase of retirement is perhaps the most important. You’ll choose the exact age to retire, which will directly impact how much you’ll get each month. If you’re setting an early retirement budget, look at how much more you’ll make if you delay your retirement to 65, 66, or full retirement age, 67. It is also important to look into the repercussions of early retirement on your IRAs, 401(k) accounts, or any pensions you’ll receive.
Once you’ve worked out your post-retirement income, use the expense method of retirement planning to develop a preliminary budget. You can then refine that budget in the coming months as you settle into your retirement lifestyle. This is also a time you’ll want to spend a little extra on travel while you’re active and exploring new hobbies, so keep that in mind as you work on a budget.
If you are financially secure when you retire, spending your money on a lavish trip or buying a high-value item can be tempting. Still, it’s important to remember that your retirement dollars could need to stretch for a long time. You may want to protect your retirement funds by balancing the more expensive activities with inexpensive or free ones.
Middle Retirement (Ages 70 to 80)
During middle retirement, you’ll likely be receiving Social Security benefits (there is no financial incentive to delay past age 70). At this stage, you could see your expenses go down. You may want to travel less and stay home more, or your travel might be centered around less expensive trips to visit grandchildren and other friends or family. If you haven’t already, this is a good time to create a will and estate plan. You might also establish a financial power of attorney and a healthcare power of attorney.
Late Retirement (80 and up)
If you become less active in your 80s, you may see a reduction in your lifestyle spending. However, health care costs generally become a larger percentage of spending. Medicare will cover many of your expenses, but you’ll still have out-of-pocket costs for things, like co-payments and deductibles.
Budgeting for Healthcare
The annual Fidelity Investments Retiree Health Care Cost Estimate report found a 65-year-old couple who retired in 2022 would be expected to spend $315,000 (after taxes) on medical expenses and healthcare during the rest of their lifetime. This estimate doesn’t even account for the cost of long-term care.
Benefits of Choosing a Life Plan Community with Life Care
As a Life Plan Community, Freedom Square of Seminole offers a wide variety of helpful services and thoughtful amenities to help you get more out of your retirement. Plus, our Life Care contract gives you the peace of mind of knowing you have access to a full continuum of high-quality care — including assisted living, memory care, skilled nursing and rehabilitation — right here at predictable monthly rates.
Choosing a community like Freedom Square makes your retirement planning easy. For help in understanding these fees, here’s what each one includes:
- Flex Your Future: This program lets you embrace the freedom of independent living by customizing your senior living costs to suit your finances. You can tailor your entrance fee by selecting your residence now with less out of pocket, then pay the remainder of your entrance fee on a flexible timeline.
- Entrance fee: The amount of this fee is based on the type of senior living contract and the size of residence you choose. The more square footage, the higher our entrance fee. Your entrance fee not only covers your residence but gives you guaranteed access to any future care you may need at below-market rates.
- Monthly fee: Your monthly fee covers home maintenance and property taxes, utilities, your dining plan, fitness membership, a beautifully maintained campus and dozens of other services and amenities.
- Life Care: Our Life Care contract offers a way to pay for long-term care expenses that makes them more predictable — saving you tens of thousands of dollars over other long-term care options.
- Tax advantages: The IRS has ruled that portions of both your entrance fee and monthly fee are deductible on your federal income return as prepayment of medical expenses. To learn more, consult your tax advisor.
Freedom Square can Help Protect Your Retirement Savings
Retirement is both an event and a process. The expenses at each retirement stage are associated with how you choose to spend your time, where you decide to live, and how your health holds up.
If you have more money and budget questions, use our Community Assistant chat function or call us. We’ll be happy to help you get everything you need to figure out your budget for your retirement years.