5 Overlooked Retirement Expenses You Can’t Afford to Ignore

Over the past twenty years, I have guided numerous individuals through their retirement journey, starting from their final day at work and continuing into the later stages of their golden years. In doing so, I’ve observed several hidden expenses that can catch retirees off guard. If not adequately managed, these costs can jeopardize one’s financial security. Retirement is a stage where every dollar counts, and preparing for these unexpected expenses is essential.

Here are the top five hidden costs retirees frequently encounter and how to handle them:

Unanticipated Health Care Costs

Many retirees underestimate their healthcare expenses, assuming that Medicare provides more comprehensive coverage than it does. In reality, Medicare Parts A and B only cover hospital stays and doctor visits. To cover dental, hearing, vision, and prescription drugs, retirees must purchase supplemental plans at an additional cost. Navigating Medicare options can be challenging, so consider enlisting the help of a reputable company to guide you through the process. Additionally, contribute to a health savings account (HSA) to help cover future healthcare costs. HSAs offer tax advantages and can be a valuable tool in managing medical expenses during retirement.

Unexpected Housing Expenses

Owning a home comes with various costs, and unforeseen home repairs are the most common financial surprises for retirees. For example, in this part of the country, at least, you’d be amazed at how often clients have to take BIG distributions to have their foundation leveled. To prepare for these expenses, include an allocation of about 1% of your home’s total value for annual repairs and maintenance in your retirement budget. Also, consider downsizing or relocating to a more affordable area to reduce housing costs and free up funds for other retirement expenses.

Long-Term Care Costs

Approximately 70% of today’s 65-year-olds will require some form of long-term care, a substantial expense that continues to rise each year. That’s a big expense, and those costs are increasing every year.

For example, in 2022, the national average cost for in-home was about 60,000, and if that turns into a private room at a nursing home, it’s just over 100,000.

Some people have long-term care insurance to pay for some or all of this, but a lot of people who bought that coverage have let it lapse because the premiums just kept increasing as the insurance companies realized they’d mispriced their coverage. This is an expense that needs to be built into your retirement income plan.

In the plans that we build for clients, we include two years of in-home care by default. We take today’s cost and increase that by a certain rate of inflation. Some clients will want to see 3 or 4 years, and then some clients have coverage through an insurance policy, so we don’t include it at all. But the important thing is to recognize that this is an expense that you will likely have, and you need to have a plan to cover it.

Supporting Adult Children

The fourth unexpected expense involves grown children, and this expense typically manifests in two ways. The first is the adult child who continuously relies on their parents for financial support. The second is the adult child who encounters a crisis and needs temporary assistance. Both situations can put your retirement savings at risk, and it’s essential to handle them effectively.

Clear communication is crucial in these situations. Don’t hesitate to inform your child about the extent of help you’re willing to provide and your expectations for repayment. Consider putting the agreement in writing to avoid misunderstandings that could transform a loan into a gift. Failure to set boundaries not only jeopardizes your retirement savings but may also cause family conflicts and resentment among other siblings.

If possible, explore alternatives to providing financial support to your adult children. In many cases, parents step in with money to resolve a crisis, only to find that emergencies become more frequent, eventually turning the parent into an interest-free lender with no repayment terms. Instead of going down this path, encourage financial independence and offer non-monetary support whenever possible to safeguard your retirement savings and maintain family harmony.

Financial Impact of Losing a Spouse

While the emotional impact of losing a spouse is challenging to prepare for, failing to plan for the financial repercussions can leave you vulnerable during an already difficult time. To safeguard your financial future, it’s crucial to familiarize yourself with the potential effects of losing a spouse on various income sources, such as pensions and Social Security benefits.

When planning for the financial impact of losing a spouse, consider the following steps:

1. Assess your pension plan survivorship options: Investigate your pension plan’s survivor benefits and understand how your spouse’s death may affect your ongoing payments. Some pension plans may offer reduced survivor benefits, while others may discontinue payments entirely.

2) Review Social Security benefits: Understand how your Social Security benefits will change when one spouse passes away. Typically, the surviving spouse will continue to receive the higher of the two benefits, which may result in a significant reduction in overall income.

1. Assess your pension plan survivorship options: Investigate your pension plan’s survivor benefits and understand how your spouse’s death may affect your ongoing payments. Some pension plans may offer reduced survivor benefits, while others may discontinue payments entirely.
2. Review Social Security benefits: Understand how your Social Security benefits will change when one spouse passes away. Typically, the surviving spouse will continue to receive the higher of the two benefits, which may result in a significant reduction in overall income.
3. Evaluate your expenses and budget: Reassess your financial needs and adjust your budget accordingly to accommodate for potential changes in income. This may involve cutting back on discretionary spending or re-evaluating your overall retirement lifestyle.
4. Update your estate plan: Ensure that your estate plan, including wills, trusts, and beneficiary designations, is up-to-date and reflects your current wishes. This can help prevent future complications and ensure that your remaining assets are distributed according to your preferences.

Retirement planning should be flexible and adaptable, capable of evolving as your circumstances change. If you don’t have a plan, my team and I can help you create a customized retirement strategy tailored to your specific needs and goals. Don’t hesitate to reach out and ensure your retirement is secure and enjoyable.