Tip of the Month

Unexpected Retirement Expenses

Taking out an extra $10,000 to pay for a new roof may not seem like a huge problem in the long term. However, costs build up, and your future retirement plans may be disrupted. Every penny matters in retirement, so you should create a precise budget that addresses as many potential issues as possible. To that end, here are some frequent yet unexpected retirement costs, as well as some tips for how to better prepare.

Home Repair Costs

Nearly 80% of those 65 and older own their homes.* Despite this, many retirees and pre-retirees underestimate their long-term housing costs by focusing primarily on monthly mortgage payments. According to a survey*, home maintenance expenditures are the most significant unanticipated retirement expense you may face.

If it’s been a while since you purchased your house, having it re-inspected by a professional may help find big problems before they become much more difficult to deal with. A good rule of thumb is to budget for annual house repairs and upkeep at 1% of the house’s entire value.*

If you want to live in your current house for the rest of your life, you should think about potential costs like wheelchair accessibility or other disability-related adjustments. As unpleasant as it is to think about, planning for such issues in advance is vital if you intend to live comfortably in the same house during your retirement years.

Uncovered Healthcare

Even with Medicare, it’ is’s no secret that healthcare may be costly in retirement. However, many retirees underestimate the cost, perhaps because they believe Medicare covers more than it does.

Part A, which covers hospital stays, and Part B, which covers doctor visits, make up original Medicare. Many additional expenditures that you may consider routine—such as dental, hearing, and eye care, as well as copays and prescription drugs—are only covered by supplementary Medicare plans, which are sold separately.

For example, you can sign up for Medicare’s standalone prescription pharmaceutical coverage, referred to as Medicare Part D. You might also look into obtaining private insurance to cover basic dental, hearing, and vision care. Another alternative is to purchase a private Medicare Advantage plan, which includes Parts A and B and may include dental, hearing, and vision benefits.

Long-Term Care

The US Department of Health and Human Services projects that over 70% of today’s 65-year-olds would require long-term care for an average of three years, with high and rising costs.* Americans are becoming more aware of these retirement expenditures, yet the vast majority still fail to plan for them—or don’t even know where to start.

Some retirees may be able to lower long-term care expenditures by relying on their families; however, those who are unable to rely on their loved ones or don’t want to burden them with such responsibility often pay these fees in one of two ways:

Paying out of pocket is a possibility, but it necessitates substantial funds to cover the costs. The benefit of this method is that you only pay for what you need. Remember, however, that there is sometimes a financial penalty for loved ones who are expected to give care, even if there is no set cost for private in-home care.

Long-Term Care Insurance can also help retirees receive the quality care they need. After all, for the majority of individuals, raising an additional $100,000 or more to cover the costs yourself is unattainable. It is often recommended* that you get a policy in your 50s or early 60s, when you are still healthy and insurable, to lock in a reduced premium.

When deciding which option is best for you, examine your estate planning objectives. Even if you can afford to pay out of pocket, long-term care insurance can help you potentially save more, which, as we’ve already talked about, is very valuable.

Losing a Spouse

It’s difficult to think about potentially losing your partner. However, failing to financially plan for it might leave you in a tough situation owing to the unexpected retirement expenses that may arise. The good news is that you can take action now and in the future to lessen the issues that arise.

Life insurance: The death benefit from life insurance can help offset a loss of income. Examine your future plans to determine if there are any substantial gaps you need cover for your spouse in the case that they outlive you.

Pensions: If you or your spouse are qualified for a pension, consider survivorship benfits. Opting for survivor benefits may lower your monthly payout, but payments will continue long after your passing. It’s better to discuss your alternatives with a financial professional, who can talk you through how all of your income sources work together.

Your surviving spouse is eligible to collect your Social Security payments if they outlive you. If you’re the higher earner and haven’t started receiving benefits yet, it may be a good idea to wait as long as possible to start benefits. This is because each year you postpone claiming benefits past the full retirement age, your eventual payout is raised by 8%, capping at age 70. This could guarantee that your surviving spouse receives the maximum benefit.

Finally, ensure that your estate plans are all in order and up to date so that assets are transferred smoothly following your passing. An estate planning attorney can help you identify and fix any gaps in your current approach.

Try Not to Stress

It’s hard to predict every curveball life throws at you, but even a little extra planning might help you deal with unexpected retirement expenses. Working with a financial professional to discuss these and other concerns might help you anticipate and address potential difficulties. The better prepared you are, the more confident you will be going into retirement.

If you’d like to learn more about how to financially plan for retirement, including how to reduce the negative impact of taxes, generate reasonable rates of return (over time), and stay protected even during a market downturn, please contact us. We’re always here to help.

*Source: Schwab.com

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