Taking out an extra $10,000 from your savings for a new roof may not seem like a big deal at the time. However, it all adds up. And plans to meet future costs may be disturbed. Every penny counts in retirement, so you should create a precise 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 primarily on monthly mortgage payments. According to a survey,* home maintenance costs are the most significant unanticipated retirement expense.
If it has been a while since you purchased your house, having it re-inspected by a professional may help in spotting problems before they become much more challenging to deal with. A good rule of thumb to follow may be* to budget for annual house repairs and maintenance at an amount equal to 1% of the house’s entire value.
If you plan to live in your home for a long time, you should think about covering potential renovations like wheelchair accessibility or other disability-related adjustments. As unpleasant as it is to think about, planning for such issues is vital if you intend to live comfortably in the same place for the rest of your life.
Uncovered Healthcare
Even with Medicare, it is no secret that healthcare may be costly in retirement. However, many retirees underestimate the cost, partially because they believe Medicare covers more than it does.
Part A, which covers hospital stays, and Part B, which covers doctor visits, make up the 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 need to be purchased separately.
For example, you can sign up for Medicare’s standalone prescription pharmaceutical coverage, called Part D. You could also look into obtaining private insurance to cover routine 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 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, yet the vast majority still do not plan for them—or 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 or unable to rely on their loved ones, or who recognize the financial and emotional implications for potential family caregivers, often pay these fees in one of two ways: Paying out of pocket, or purchasing long-term care insurance. While paying out of pocket, in theory, allows you to only pay for what you need, most people don’t have an additional $100,000 or more lying around. Long-term care insurance is a more viable options for getting the quality care you need and, even if you can afford to pay out of pocket, long-term care insurance has the benefit of helping you keep more of your savings.*
Losing a Spouse
It’s difficult to have to think about losing your partner. However, failing to financially plan for the possibility can leave you in a tough 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 those problems.
Life insurance: The death benefit from life insurance can help offset a loss of income. You and your spouse should examine your future plans to see if there are any substantial gaps either of you might want to cover for the surviving spouse.
Pensions: If you or your spouse are qualified for a pension, consider survivorship possibilities. Opting for survivor benefits may reduce your monthly payout, but payments will continue long after your death. It’s better to discuss your alternatives with a financial professional, who can walk you through how all of your income streams work together.
Your surviving spouse can get Social Security payments after your death. 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. This is because each year you delay claiming benefits past the full retirement age increases your payout by 8%, maxing out at age 70. This could ensure that the 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 following your passing. An estate planning attorney can help you identify and fix any gaps in your current plans.
Try Not to Stress
It’s impossible to predict every curveball life will throw 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 future problems while you still can. The better prepared you are, the more confident you will hopefully be as you enter 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 a reasonable rate of return (over time) on a portion of your savings, and keep your money protected even during a market downturn, please contact us. We’re always here to help.
*Source: Schwab.com