Prepaying expenses is a great way to plan ahead for expected costs at a time when it's easier and less stressful — before they're weighing you down. And it can be an important part of your retirement plan. But what kinds of expenses can you prepay, and how? Here are a few that every retirement planner might consider.
Your House Payment
One of the biggest ongoing expenses for most people is their mortgage or rent payment. So if you can buy and pay off a primary home before retirement, you free up a huge chunk of the monthly budget. The best way to accomplish this is to opt for a shorter mortgage term, such as 15 years rather than 30.
Your Medical Expenses
Another large retirement expense for most Americans is health care. You generally can't prepay actual bills before they happen, but you can put money aside while working to cover later expenses. Look for a Health Savings Account or consider using a Roth IRA, both of which you can fund for years without spending.
Your First Year Expenses
One of the more difficult times during retirement is the transition from working to not working. You may not have a good handle on your retirement budget. You might want to do one-time things such as travel. Or perhaps you end up retiring unexpectedly. Create a bulwark against transitional problems by prepaying six to twelve months of regular bills over time — things like a mortgage, utilities, car payments, insurance, and more.
Your COBRA
If you retire before Medicare eligibility, covering health insurance may be a challenge. COBRA rules require your employer to allow you to keep your employee insurance for up to 18 months after leaving the company. You'll pay the full premium, though. Put money aside — perhaps in an HSA — to use later to fill that gap.
Your Side Hustle
Experts often recommend developing a side hustle for supplemental income during retirement. Get this project up and running now to avoid incurring startup costs when you don't have a paycheck. Buy and pay off a single-family rental unit. Turn a hobby into a small business. Or start developing a consulting network while you're working. Keep this on the back burner until you're ready to ramp it up more.
Where to Start
Prepaying expenses that will occur once you retire is a smart move for anyone. But it calls for planning and preparation — even years before retirement. Start by meeting with a retirement planner in your state today.
Share17 October 2022
After we bought a house, I started realizing that we were going to need to learn to save a little money. We had become pretty laid back about spending because we were so accustomed to making so much extra each month, but with a mortgage, we found ourselves running out of money on a regular basis. I decided to get real about our finances, which is why I set up a financial plan to stick with year round. You wouldn't believe how much of a difference that simple plan made. We went from scraping together money to head to the grocery store to sticking with a rock solid budget.
