At first, taking out an extra $10,000 from your savings to pay for a new roof might not seem like a big deal. But costs add up, and plans for how to pay for future expenses might not work out as planned. You should have a detailed budget that covers as many possible problems as possible in retirement, because every penny counts and it’s important that you’re spending it in a way that prioritizes the right things. So, here are some common but unexpected retirement expenses, along with some tips on how to better plan for them.
Home Repair Costs
Almost eighty percent of people aged 65 and up own their own homes.* Still, a lot of retirees and people who are getting ready to retire don’t think about their long-term housing costs because they only think about their monthly mortgage payments. A survey* found that the biggest unexpected cost of retirement is the cost of fixing up the house.
If it’s been a while since you bought your home, having an expert look it over again might help you find problems before they worsen. A good rule of thumb* is to set aside savings equal to 1% of your home’s value each year for repairs and maintenance.
For those who plan to stay in their home for a long time, you should think about the costs that might come up, like making it wheelchair accessible or other changes to accommodate a disability. Even though it’s unpleasant to think about, you need to plan for problems like these if you plan to live in the same house for the rest of your life.
Uncovered Healthcare
People who are retired know that health care can be pricey, even with Medicare. A lot of retirees, though, don’t realize how much it costs, in part because they think Medicare covers more than it does.
Parts A and B make up original Medicare. Part A covers hospital stays, and Part B covers doctor visits. Supplemental Medicare plans, which cost extra, cover a lot of other costs that you might need, like copays, prescription drugs, dental, hearing, and eye care.
For instance, you can sign up for Part D, Medicare’s stand-alone program for prescription drugs. You might also want to buy your own insurance to cover regular eye, dental, and hearing care. It’s also possible to buy a private Medicare Advantage plan, which combines Parts A and B and might cover dental, hearing, and vision care.
You should set a monthly budget for health care of “$450 to $850 per person.”* This includes out-of-pocket costs and plan premiums. But the amount can be very different depending on your specific health care needs.
Long-Term Care
According to the U.S. Department of Health and Human Services,* about 70% of today’s 65-year-olds will need long-term care for an average of three years, which will cost a lot and keep going up. Even though more Americans are learning about these costs, most still have no plan for them and don’t even know where to start.*
Some retirees may be able to lower their long-term care costs by relying on their families. But for those who can’t or don’t want to rely on their loved ones, or who know the financial and emotional costs for potential family caregivers, there are two main ways to pay for long-term care:
You can pay out of pocket, but you’ll need a lot of money saved up to do so. Ideally, you only pay for what you need with this system, which is a plus. However, many others might look to fund the care they need by using Long-Term Care Insurance. After all, it’s not feasible for most people to come up with an extra $100,000 or more to cover costs out-of-pocket. To lock in a lower premium, it’s recommended* that you buy a policy when you’re in your 50s or early 60s, while you are still healthy.
Losing a Spouse
Losing your partner is a painful thing to contemplate. But, if you aren’t prepared for it finance-wise, the unexpected retirement expenses it could come with could put you in a bad spot. The good news is, you can reduce these potential problems by taking action now and in the future:
Life insurance: When the insured individual passes away, the payout from life insurance can help make up for lost income. Look over your plans for the future and see if there are any big gaps that you might want to cover for your spouse using life insurance after you pass away.
If you or your spouse are eligible for a pension, look into your options for survivorship. If you choose survivor benefits, your monthly benefit may go down, but payments will keep coming even after your passing. The best way to decide what to do is to talk to a financial expert. They can help you see how all of your income streams fit together.
If you’re the higher earner between yourself and your spouse and aren’t receiving Social Security benefits yet, it might be a good idea to hold off on claiming benefits for as long as possible. Your benefits increase by 8% for every year past retirement age you wait to claim them, capping out at age 70. If you hold off on taking benefits, this could ensure that after you’re gone, your spouse gets the maximum benefit possible.
Lastly, make sure that your estate plans are all in order and up to date so that your assets are transferred easily upon your passing. An estate planning lawyer can help you find and fix any holes in your current plan.
Try Not to Stress
You can’t plan for every surprise that life will throw at you, but doing a little extra planning can help you handle unexpected retirement expenses. Talking to a financial professional about these and other worries can help you see problems coming and solve them before they begin to impact you. The more ready you are for retirement, the more confident you’ll hopefully be.
Get in touch with us if you want to learn more about ways to save money for retirement, such as how to reduce the impact of taxes, earn reasonable rates of return on your money over time, and keep your money safe even in the event of a market drop. We’re always here to help.
*Source: Schwab.com
