Unexpected Retirement Expenses

Taking out an extra $10,000 from your savings for a new roof may not seem like a huge issue at the time. However, costs build up, and plans to meet future expenses 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 difficult to deal with. A good rule of thumb is to budget for annual house repairs and maintenance at an amount equal to 1% of the home's total value.*

If you plan to live in your home for the long term, you should think about potential costs like wheelchair accessibility or other disability-related adjustments. As unpleasant as it is to consider, planning for such issues is vital 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 may be costly in retirement. However, many retirees underestimate the cost, partially because they believe Medicare covers more than it truly does. 

Part A, which covers hospital stays, and 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 extra. 

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 also include dental, hearing, and vision benefits.

Overall, it's a good guideline to set a monthly healthcare budget of "$450 to $850 per person."* To cover plan premiums and/or out-of-pocket spending on medical care. This range, however, varies substantially based on your specific healthcare requirements. 

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 still-rising costs.* Americans are becoming more aware of these retirement expenses, yet the 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 unwilling or unable to rely on their loved ones, often pay these fees in one of two ways: 

Paying out of pocket is a possibility, but it necessitates substantial reserves to cover the costs. The benefit of this method is that you can only pay for what you need. However, for most people, raising enough money to pay out-of-pocket isn't feasible. Long-Term Care Insurance can also help people get the quality care they need. If you go this route, 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 reduced premium.

Losing a Spouse

It's difficult to consider losing your partner. However, failing to financially prepare for it can leave you in a tough spot, due to the unexpected expenses that may arise. The good news is that you can take steps now and in the future to lessen this risk: 

Firstly, the death benefit from life insurance can help offset a loss of income. Examine your future plans to see if there are any substantial gaps you might want to cover for your surviving spouse.

Next, 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 passing. It's also recommended that you discuss your options with a financial professional, who can walk you through how all of your income streams could function together. 

Your surviving spouse can get Social Security payments after your passing. If you're the higher earner and haven't started receiving benefits yet, it may be a good idea to wait as long as feasible. This is because each year you delay claiming benefits past full retirement age increases your payout by 8%, which reaches its maximum at age 70. This could ensure that your surviving spouse receives the maximum benefit possible. 

Lastly, ensure that your estate plan is in order and up to date so that assets are transferred smoothly following your death. An estate planning attorney can help you identify and fix any gaps in your current plan. 

Try not to Stress

It's impossible to predict every curveball life could throw at you, but even a little extra preparation can help you handle unexpected retirement expenses. Working with a financial professional to discuss these and other concerns might help you anticipate and address future problems easier. The better prepared you are, the more confident you will be entering retirement. And, in our eyes, having confidence and peace of mind is one of the most important parts of retiring. 

If you'd like to learn more about how to financially plan for retirement, including how to lessen the burden of taxes, generate reasonable rates of return (over time), and keep your savings protected even during a market downturn, please contact us. We're always here to help. 

*Source: Schwab.com