Shifting of Expenses

Prior to retirement much of your disposal income went for items such as home mortgage, car loan and your children’s education. In your pre-retirement budget these items were so significant as to mask many smaller expense items. Once the major pre-retirement expenses are diminished or gone, as they need to be in retirement, other items will gain significance.

We’ve already discussed, earlier in this section, the major retirement expenses for income taxes, property taxes, health care, and long-term care. Health care and long term care have two components – the money spent for any day-to-day expenses and the money spent for insurance to protect you from major future costs.

The thing about money spent on insurance is that you have to have bad things happen to you in order to be able to take advantage of it and collect some money. By this logic, the more insurance that you buy, the more certain you are that you’re going to need it. The point that I’m trying to make is quite simple, you need to weigh the cost of insurance against the consequence of not having it or not having enough.

By this I’m not in any why implying that you don’t need insurance, I’m just saying that you cannot afford to be “insurance poor” in retirement. The solution that I’m advocating is to self-insure as much as you can, but still make sure that you’re covered for catastrophic expenses. You do this by raising the deductible on your car insurance policies (to reduce premiums), shopping for the best reasonably-priced health insurance, and never buying appliance or electronic-item insurance.

It’s important to know where you money goes in retirement.

Pre-Retirement Expenses

How Much is Enough?

Insurance Dominates