Withdrawing an extra $10,000 from your savings for a new roof may not seem like a big deal at the time. But, costs add up, and plans for covering future costs may be disrupted. Every little bit counts in retirement, so you should have a detailed budget that covers as many potential problems as possible. So, to that end, here are a few common but unexpected retirement expenses, as well as some advice on how to better prepare for them.
Home Repair Costs
Nearly 80% of people 65 and older own their houses.* Despite this, many retirees and pre-retirees underestimate their long-term housing expenses by focusing solely on their monthly mortgage payments. According to a survey,* home repair costs are the biggest unforeseen retirement expense.
If it’s been a while since you acquired your home, having it re-inspected by an expert might assist in detecting problems before they become much worse to deal with. A decent rule of thumb is to make your budget for annual repairs and maintenance on your house equal to 1% of your house’s total value.*
If you intend to stay in your house long-term, you should consider prospective costs, such as wheelchair accessibility or other disability-related modifications. As unpleasant as it is to think about, preparing for such problems is necessary if you’re planning on comfortably living in the same place for the rest of your life.
Uncovered Healthcare
Even with Medicare, it’s no secret that healthcare can be expensive in retirement. However, many retirees underestimate the expense, partly because they think Medicare covers more than it does.
Original Medicare consists of Part A, which covers hospital stays, and Part B, which covers doctor’s visits. Many other expenses that you might 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 extra.
For example, you can enroll in Medicare’s stand-alone prescription medication program, known as Part D. You could also consider 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 can potentially include dental, hearing, and vision coverage.
Overall, it’s appropriate to set a monthly healthcare budget of “$450 to $850 per person.”* This includes plan premiums and out-of-pocket expenses. The amount can vary greatly, however, depending on your individual healthcare needs.
Long-Term Care
The U.S. Department of Health and Human Services predicts that about 70% of today’s 65-year-olds would need long-term care for an average of three years, with high and escalating expenditures.* Americans are growing more aware of these retirement expenses, yet the majority still do not plan for them—or even know where to begin.
Some retirees may be able to reduce long-term care costs by relying on their families, but those who can’t or don’t want to rely on their loved ones, or who recognize the financial and emotional costs for potential family caregivers, typically cover these expenses in one of two ways:
Paying out-of-pocket is an option, but requires large reserves to cover the costs. The advantage of this system is that you only pay for what you need. Remember, too, that there is often a financial penalty for loved ones who are expected to provide care, even if there is no specific cost for private in-home care.
Long-Term Care Insurance may also help people receive the quality care they need. After all, for the majority of people, coming up with an additional $100,000 or more is unrealistic. It is usually recommended* that you buy a policy in your 50s or early 60s, when you are still healthy and insurable, to lock in a lower premium.
When selecting which option is best for you, consider your estate planning goals. Even if you can afford to pay out of pocket, long-term care coverage can help better preserve 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 unforeseen retirement expenses that may come with it. The good news is that you can take steps now and in the future to reduce such risk:
- Life insurance: The payout that comes from life insurance when the insured passes away can help offset a loss of income. Review your plans for the future to see if there are any significant gaps you may want to insure for your surviving spouse.
- Pensions: If you or your spouse is eligible for a pension, look into survivorship options. Opting for survivor benefits may reduce your monthly benefit, but payments will continue even after you pass away. It’s best to weigh your options with a financial professional, who can help walk you through how all your sources of income fit together.
- Social Security: Your surviving spouse is eligible to receive your Social Security benefits upon your passing. If you’re the higher earner and not yet collecting benefits, it may make sense to delay doing so for as long as possible. This is because every year that you delay taking benefits past full retirement age increases your benefit by 8%, maxing out at age 70. This could ensure your surviving spouse is left with the biggest possible benefit.
Finally, make sure your estate plans are in order and up to date to guarantee a smooth transfer of assets after your death. An estate planning attorney can assist you in identifying and addressing any holes in your current strategy.
Try Not to Stress
It’s impossible to foresee every curveball life will throw at you, but even a little bit of additional strategizing can help you deal with unforeseen retirement expenses. Working with a financial professional to explore these and other concerns can help you foresee future problems and deal with them in advance. The more prepared you are, the more confident you will be going into retirement.
If you’d like to learn more about options to financially prepare yourself for retirement, including how to reduce the negative impact of taxes, earn reasonable rates of return (over time) on your money, and stay protected even in the event of a market downturn, reach out to us. We’re always here to help.
*Source: Schwab.com
