When we talk about the biggest expenses in retirement, most of us think of healthcare and mortgage payments. However, transportation is another significant cost that doesn’t typically get as much attention. A 2014 Bureau of Labor Statistics Consumer Expenditure Survey found that transportation is the second highest expenditure for seniors age 65 and older, behind housing and ahead of healthcare. It may come as a surprise to many that transportation represents 16% of seniors’ expenditures, whereas healthcare only makes up 13.4%.1
According to Joseph Coughlin, director of the MIT AgeLab and the New England University Transportation Center, “Transportation is one of the greatest under-discussed and under-planned things in retirement I’ve seen almost anywhere. We think about health, wealth and housing, but not mobility. Before we do anything, we have to get there first.” Coughlin goes on to discuss how “Many transportation costs are fixed, whereas other expenses tend to decline in later life, thereby giving transportation greater scale on the balance sheets of older Americans.”1
Transportation is made up of a number of costs which can include the following: car purchase, leasing and financing, insurance and registration, maintenance and repairs, gas, public transportation, and car rentals. For anyone who has owned a car, they know how quickly these expenses can add up. An unexpected car repair could present a major problem for a senior on a fixed budget. Even if you no longer have a car payment, you still have repairs and maintenance. As the car gets older, the cost of repairs will likely go up. These days it’s not uncommon for seniors to live twenty to thirty years after retiring, so even if you bought a new car early in retirement, you’ll probably need another one at some point.
Given the fact that transportation is such a large expense, it’s a topic that financial advisors should be discussing with their clients. It’s a good idea to review bank account and credit card statements with your advisor to help identify how your costs will change after you retire. You should also talk to your advisor about where you want to live as part of your retirement planning. This will largely impact your costs because it will determine how you get around. For example, living in a more metropolitan area where you can walk or use public transit versus living in a rural area where a car is a necessity. According to a report by Transportation for America, “Seventy-nine percent of seniors over age 65 live in car-dependent suburban and rural communities.”1 If you aren’t comfortable with or can’t drive anymore, then you may need to budget funds for a service or share the expenses if you rely on family and friends to drive you.
If you or someone you know is looking for a way to supplement their retirement income to pay for expenses like transportation, a reverse mortgage loan may be an option. A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration insured loan. A HECM enables seniors to access a portion of their home’s equity to obtain tax free2 funds without having to make monthly mortgage payments.3
If you’d like to learn more about reverse mortgages and want see if you’re eligible, call 800-218-1415.
1 The Critical Retirement Cost Many Advisors Aren’t Discussing With Clients – investmentnews.com, by Greg Lacurci, 10/12/15, http://www.investmentnews.com/article/20151012/FREE/151019990/the-critical-retirement-cost-many-advisers-arent-discussing-with
2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
3 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
Author: Meredith Manz