Cutting Expenses for Retirement? Here’s the 1 Thing You Should Not Get Rid Of
Quitting your 9-to-5 may seem like a dream come true, but retirement is not always easy. Many retirees struggle to live on a fixed income and end up needing to cut costs.
A survey from AARP found that over 60% of respondents worry that “they will not have enough money to support them during retirement.” Despite these concerns, the survey also found that 1 in 5 adults aged 50 and up have no retirement savings.
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Without a fully-funded retirement, seniors often find themselves making cuts — everything from dining out and entertainment to downsizing their home. But not all expenses should get nixed, particularly as you age.
Erika Kullberg, an attorney, personal finance expert and founder at Erika.com, said this is the one thing you should not get rid of when you are cutting expenses for retirement.
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What Is the Number One Thing Retirees Cannot Do Without?
“It’s completely understandable that retirees look to cut costs — in fact, reviewing your budget to see where you can reduce expenses is a great habit to maintain throughout retirement,” said Erika, a personal finance expert with millions of followers across the globe.
“That said, one thing retirees should avoid cutting is their health insurance. Healthcare costs tend to increase with age, and unexpected medical expenses can quickly drain even the most resilient retirement savings.”
“It’s not just about covering routine check-ups, although that’s useful,” she continued. “It really comes down to safeguarding against the financial impact of serious illnesses or emergencies. Having health insurance in retirement isn’t so much about how healthy you are or are not, but how protected you are against the financial stress of an unexpected illness or emergency.”
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Why Is Health Insurance So Important During Retirement?
As the National Council on Aging (NCOA) reported, the Social Security Administration now estimates that a 65-year-old can expect to live an additional 20 years.
Few older Americans, however, are prepared for the financial hardships that may come along with this longer lifespan. The NCOA’s analysis of data found that 80% of older adults are currently struggling financially or at risk of economic insecurity in the future.
Furthermore, the study found that most seniors lacked the resources necessary to “weather a ‘financial shock,'” including long-term care needs or a significant health issue. Health insurance can help offset many of these costs.
Unfortunately, a gap in coverage can be financially devastating for a retiree, which is why it is critical to ensure you have coverage from the date your employer-sponsored health coverage ends.
What Kind of Health Insurance Is Available?
If you are 65 or older, you are likely eligible for Medicare.
Many people qualify for premium-free Part A coverage, known as hospital insurance. You can also purchase Part B coverage for medical insurance (although you may be automatically enrolled), Part C (Medicare Advantage Plans), or Part D (Drug Coverage). It is crucial to speak with a Medicare representative before you enroll so that you understand your options.
If you are not yet 65, you should still seek comprehensive health insurance. You can generally purchase your insurance through a Marketplace where you can compare costs and coverage. You may be able to get lower-cost coverage if your income has changed because of retirement.
What Expenses Can Be Cut for Retirement?
If you, like millions of other retirees or soon-to-be retirees, are looking for ways to cut costs, you are in luck. There are several unnecessary items that you may want to consider slicing from your budget in order to save more money for retirement.
You can save tens of thousands of dollars every year by cutting out these nine expenses, which include storage rentals, streaming services and dining out. If you live in a place that has sufficient public transportation, you can save an estimated $12,000 per year. This is also helpful for families that have two cars but can afford to go down to one since they no longer need to commute to work each day.
Even little cutbacks can help. According to Fidelity, reducing energy use by installing a programmable thermostat or switching to energy-saving LED lights can save hundreds of dollars a year.
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This article originally appeared on GOBankingRates.com: Cutting Expenses for Retirement? Here’s the 1 Thing You Should Not Get Rid Of