Taking out an extra $10,000 from your savings for a new roof may not seem like a big deal at the time. However, costs build up, and plans to cover future expenses may be disrupted. Every penny counts in retirement, so you should create a detailed budget that addresses as many potential issues as possible. To that end, here are some common but unexpected retirement expenses, as well as some tips for better planning.
Home Repair Costs
Nearly 80% of those 65 and older own their homes.* Despite this, many retirees and pre-retirees undervalue their long-term housing costs by focusing solely on monthly mortgage payments. According to a survey,* home repair costs are the most significant unforeseen retirement expense.
If it has been a while since you purchased your home, having it re-inspected by a professional may help in detecting problems before they become much more difficult to deal with. A good rule of thumb is to budget for annual house repairs and maintenance at 1% of the house’s total value.*
If you plan on living in your home for a long time, you should think about potential accessibility costs, like making it wheelchair-accessible. As unpleasant as it is to dwell on, planning for such issues is necessary if you intend to live comfortably in the same home for the rest of your life.
Uncovered Healthcare
Even with Medicare, it’s no secret that healthcare can be costly in retirement. However, many retirees underestimate the cost, partially because they believe Medicare covers more than it does.
Medicare Part A, which covers hospital stays, and Medicare Part B, which covers doctor visits, make up original Medicare. Many other expenses that you may consider routine—such as dental, hearing, and eye care, as well as copays and prescription drugs—are only covered by supplemental Medicare plans, which cost more.
For example, you can sign up for Medicare’s standalone prescription medication program, known as Part D. You could also look into purchasing private insurance to cover routine dental, hearing, and vision care. Another option is to purchase a private Medicare Advantage plan, which combines Parts A and B and may include dental, hearing, and vision benefits.
Overall, it is appropriate to set a monthly healthcare budget of “$450 to $850 per person.”* To cover both plan premiums and out-of-pocket expenses. The amount, however, varies greatly depending on your specific healthcare requirements.
Long-Term Care
The US Department of Health and Human Services predicts that approximately 70% of today’s 65-year-olds will require long-term care for an average of three years, with high and rising costs.* Americans are becoming more aware of these retirement expenses, but the vast majority still do not plan for them—or even know where to start.
Some retirees may be able to reduce long-term care costs by relying on their families; however, those who are unable or unwilling to rely on their loved ones, or who recognize the financial and emotional burden for potential family caregivers, typically cover these expenses in one of two ways.
Paying out of pocket is an option, but it necessitates substantial funds to cover the costs. The benefit of this system is that, ideally, you only pay for what you need. However, few have the funds to make this work. Most people don’t have an additional $100,000 to spare when it comes to retirement expenses. So…
Long-Term Care Insurance can also help people get the quality care they require. It is typically recommended* that you purchase a policy in your 50s or early 60s, while you are still healthy and insurable, to lock in a lower premium. Even if you can afford to pay out of pocket, long-term care insurance may be useful because it helps you hold onto more of your savings.*
Losing a Spouse
It’s difficult to think about losing your spouse. However, failing to financially plan for it can put you in a difficult situation due to the unexpected retirement expenses that may arise. The good news is that you can take steps now and in the future to reduce these problems.
Life insurance: The death benefit from life insurance can help offset a loss of income. Examine your future plans to see if there are any significant gaps you might want to cover for your surviving spouse.
Pensions: If you or your spouse are eligible for a pension, consider survivorship options. Opting for survivor benefits may reduce your monthly benefit, but payments will continue even after your death. It’s best to discuss your options with a financial professional, who can walk you through how all of your income streams work together.
Your surviving spouse can receive Social Security benefits after your death. If you’re the higher earner and haven’t started collecting benefits yet, it may be a good idea to wait as long as possible. This is because each year you delay taking benefits past the full retirement age increases your benefit by 8%, which reaches its maximum at age 70. This could ensure that your surviving spouse receives the maximum benefit.
Finally, ensure that your estate plans are in order and up to date so that assets are transferred smoothly after your death. An estate planning attorney can help you identify and address any gaps in your current retirement strategy.
Try Not to Stress
It’s impossible to predict every curveball life will throw at you, but even a little extra strategizing can help you deal with unexpected retirement expenses. Working with a financial professional to discuss these and other concerns can help you anticipate and address future problems. The better prepared you are, the more confident you will be as you enter retirement.
If you’d like to learn more about how to financially prepare for retirement, including how to reduce the negative impact of taxes, earn reasonable rates of return (over time), and stay protected even during a market downturn, please contact us. We’re always willing to help.
*Source: Schwab.com
