5 Common Retirement Budgeting Mistakes Your Clients Are Making

The fact is that some of these retirement budgeting errors are caused by overspending on discretionary items, some are the result of mistaken spending assumptions and others are caused by unexpected financial burdens that could not have been anticipated. Here are five common budgeting mistakes that your clients are making after they enter retirement:

1. Entertainment

Advisors have a pretty keen sense of which expenses will go down and which ones will rise in retirement, but many of your clients are surprised at how much their entertainment spending increases once they stop working. With weekdays suddenly wide open, they tend to fill that time with more leisure activities such as lunching out with friends and spontaneous road trips. This is great for their quality of life but can create budget management challenges if your planning work assumed lower levels of spending. However, there is no need to assume that a surge in post-retirement spending on entertainment will continue at that rate; federal government data indicates that entertainment spending declines with age.

2. Health Care

Many of your clients view Medicare as the complete financial solution for their medical expenses in retirement. After all, they know they've been paying into the system for decades, so it's reasonable for them to assume that now is their time to claim that umbrella insurance coverage. Unfortunately, health care expenses typically increase as your clients age and Medicare rarely covers all of the prescription drug expenses, out-of-pocket expenses and dental bills they will face in retirement. These combined retirement health care expenses were projected at $275,000 per couple in a report last year, an amount that will exceed many retiree budgets.

3. Home Improvements

During your clients' working years, they eventually came to understand that unexpected miscellaneous expenses are just a fact of life for homeowners. We all tend to factor in those unwelcome surprises as part of our routine annual household budgets. But for some reason, many retirees fail to properly budget for occasional emergency expenses (e.g., a new roof) and even routine home repairs. This item can also be a retirement budgeting mistake for your clients who choose to downsize to a smaller home or relocate to a new community. Moving expenses add up quickly and most retirees want to spend some money to make some custom improvements to their new residences.

4. Family Support

This is a surprisingly common retirement budgeting challenge. It's one thing for a retiree to make personal sacrifices and cut back their own expenses if their spending is exceeding their financial plan, but most of us know how tough it is to say "No" to one of our children or grandchildren when they're in a bind.