Taking an additional $10,000 out of your savings for a new roof might not seem like a huge problem now. However, expenses add up, and your budget for the future could be thrown off. In retirement, every penny counts, therefore, you should establish a thorough budget that accounts for all conceivable issues. In light of this, here are some typical yet often unexpected retirement expenses, along with tips to better plan for them.
Home Repair Costs
Almost 80% of those over 65 are homeowners.* Nevertheless, by focusing only on their monthly mortgage payments, many retirees and pre-retirees underestimate their long-term housing costs. * A poll indicates* that home repair costs are the biggest unexpected retirement expense.
Having your house re-inspected by a professional could help identify issues before they become more difficult to handle. If it has been a long time since you bought it, it’s a good idea to have it inspected now, before your retirement. As a general rule of thumb, if possible, you may want to outline a budget equal to 1% of your home’s total worth for repairs and maintenance each year.*
You should think about potential expenses related to accessibility, including wheelchair access, if you plan to remain in your home long-term. Even if it is upsetting to think about, if you intend to live comfortably in the same house for the rest of your life, you must prepare for such issues.
Uncovered Healthcare
It’s no secret that retirement healthcare may be costly, even with Medicare. Many retirees, however, underestimate the cost, in part because they believe Medicare covers more than it actually does.
Parts A and B (which make up original Medicare) cover hospital stays and doctor visits, respectively. Only supplemental Medicare plans cover many other costs that you might think of as normal, like copays, prescription medications, and dental, hearing, or vision care.
For instance, you can sign up for Part D, Medicare’s independent prescription drug program. To pay for regular dental, hearing, and vision treatment, you can also look into getting private insurance. Or, consider purchasing a private Medicare Advantage plan, which includes Parts A and B and may offer coverage for dental, hearing, and vision, is an additional choice.
Long-Term Care
About 70% of today’s 65-year-olds are expected to require long-term care for an average of three years, with high and rising costs, according to the U.S. Department of Health and Human Services.* Despite increased awareness of these retirement costs, most Americans still do not plan for them or even know where to start. But usually, if they do think about long-term care, they decide to pay for these costs in one of two ways:
Although it is an option, paying out of pocket necessitates substantial funds to cover the expenses. This system’s benefit is that, theoretically, you only pay for what you need. However, for many people, coming up with that much extra money isn’t feasible. So, the alternative is:
Long-term care insurance may make it easier for people to get the high-quality care they require. To lock in a reduced premium, it is typically advised* that one purchases a policy when they are still healthy and insurable, during their 50s or early 60s.
Additionally, think about your estate planning goals while deciding which choice is best for you. Long-term care insurance could potentially help you better protect your funds, even if you can afford to pay out of pocket.
Losing a Spouse
The thought of losing your partner is not an easy thing to grapple with. However, the unexpected retirement costs that may accompany it can put you in a bad situation if you don’t anticipate it. The good news is that you can lower the associated risks both now and in the future by doing the following:
Life insurance: The loss of income associated with the death of a spouse may be partially compensated for by a life insurance policy payout. Examine your future plans to determine whether there are any important gaps that you would want to cover using life insurance for your surviving spouse.
Pensions: Research survivorship possibilities if you or your spouse qualify for a pension. Your monthly benefit may be lower if you choose survivor benefits, but payments will still be made after your passing. A financial expert can help you understand how all of your income sources fit together, so it’s wise to discuss your alternatives with them. Reach out to us to learn more.
Social Security: After your death, your surviving spouse is entitled to receive your Social Security benefits. Delaying benefits for as long as possible could make sense if you are the higher earner compared to your spouse. This is due to the fact that your payments increase by 8% each year after you reach full retirement age, reaching their max at age 70. This could guarantee that your surviving spouse receives the maximum benefit.
Lastly, to ensure a seamless transfer of assets after your death, make sure your estate planning documents are up-to-date and in order. Any gaps in your current strategy can also be fixed with the help of an estate planning lawyer.
Try Not to Stress
Even a small amount of extra planning can go a long way to help you with unexpecte retirement expenses, so don’t worry about trying to predict every single twist and turn your life will take during retirement. By discussing your situation, needs, and goals with a financial professional, you can anticipate some future issues and address them before they arise. This way, you’ll hopefully be more confident going into retirement.
Get in touch with us if you want to find out more about your options for retirement, including how to lessen the impact of taxes during retirement, generate a reasonable rate of return on your money (over time), and maintain a level of security even in the case of a market drop. We’re always here to help.
*Source: Schwab.com