At the time, taking an additional $10,000 out of your retirement savings for a new roof might not seem to matter too much. However, expenses mount up, and plans to pay for future expenses could be thrown off. In retirement, every penny counts. Therefore, you should establish a thorough budget that accounts for as many unexpected retirement expenses as possibe. In light of this, here are some typical yet unforeseen retirement expenses, along with tips to better prepare for them.
Home Repair Costs
Almost 80% of people over age 65* are homeowners. Nevertheless, by focusing just on their monthly mortgage payments, many retirees* and pre-retirees underestimate their long-term housing costs. A survey* indicated that home repairs were the most significant retirement expense, more than anything else. So, keeping them in mind while budgeting for retirement is crucial.
Having your house re-inspected by a professional could help identify issues before they become more difficult and expensive to handle. If it’s been a long time since you bought your house, it may be time for another inspection now that you’re nearing retirement. One idea for how to budget: set aside savings equal to 1% of your home’s total value each year for repairs and maintenance.
You should think about funding renovations like wheelchair accessibility if you plan on staying in your home for the 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 need to be prepared for it.
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.
Medicare Parts A and B, which make up original Medicare, cover hospital stays and doctor visits, respectively. Only supplemental Medicare plans cover other expenses, like copays, prescription medications, and dental, hearing, and vision care. All of those services you think of as routine aren’t covered by original Medicare.
You could sign up for Part D, Medicare’s independent prescription drug program. To pay for regular dental, hearing, and vision treatment, you could also look into getting private insurance. Another option would be purchasing a private Medicare Advantage plan. This includes Parts A and B and may also offer coverage for dental, hearing, and vision.
All things considered, a monthly healthcare budget of “$450 to $850 per person”* is reasonable. This covers both out-of-pocket expenses and plan premiums. However, the amount can vary significantly based on your specific medical needs.
Long-Term Care
About 70% of today’s 65-year-olds are expected to need 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 costs, most Americans still do not plan for them or even know where to start. Typically, however, they usually cover these retirement expenses in one of two ways:
Although it is an option, paying out of pocket necessitates substantial funds. This method’s main benefit is that you only pay for what you need. However, the majority of people can’t just come up with an extra $100,000 or more to pay out-of-pocket.
The other method long-term care insurance, which 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 you purchase a policy when you are still healthy and insurable, in your 50s or early 60s.
Additionally, think about your estate planning objectives while deciding which choice is best for you. Long-term care insurance can 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 dwell on. However, the unexpected retirement expenses that may accompany it can put you in a bad situation if you aren’t prepared. The good news is that you can lower this risk both now and in the future by doing the following:
- Life insurance: A loss of income may be partially compensated for by the payout received from life insurance. Examine your future plans to determine whether there are any important gaps that you would want to cover with 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 can continue going to your spouse after you pass away. Also, reaching out to a financial professional can help you understand how all of your income sources fit together.
- Social Security: After your passing, 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 and haven’t started collecting them yet. This is due to the fact that your payments are increased by 8% for each year you wait to start payments after you reach full retirement age, capping once you reach age 70. This could guarantee that your surviving spouse receives the maximum possible benefit to support him or her.
Lastly, to ensure a seamless transfer of assets after your death, make sure your estate plans are current and in order. Any gaps in your current plan can be found and fixed with the help of an estate planning lawyer.
Try Not to Stress
It’s impossible to predict every twist and turn you’ll take during your retirement years, and that’s okay. Even a small amount of extra strategizing can help you with unforeseen retirement expenses. You can anticipate future problems and address them before they even come up by discussing these and other issues with a financial professional. Interested in learning more? Reach out to us.
If you want to find out more about your alternatives for retirement financial planning, including how to lessen the adverse effects of taxes, generate respectable rates of return on your investments (over time), and maintain your security even in the case of a market decline, reach out to us.
*Source: Schwab.com
