5 Unexpected expenses to prepare for during retirement

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It’s no secret that retirement can be expensive. This is why we spend (or should spend) most of our productive life planning and preparing for it so it doesn’t become a financial nightmare. But even with the best laid plans, some unexpected expenses can pop up and throw a wrench in your budget. This is when we think, “If only I had known this could happen, I would have saved more to have enough for my dream trip to Italy.”



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Although unforeseen expenses are only unexpected until you know they might arrive, we often forget about some of them and fail to include them in our plans and our budget. For example, most credit cards will charge a fee once a year, so it’s easy to forget about them until they show up on your statement. Other credit cards spread the annual fee into monthly installments, making these expenses much easier to manage. However, the same cannot be said for most unforeseen retirement expenses. It usually ends up as part of our emergency fund in case of a rainy day. This is why a list of commonly forgotten expenses you should look out for is essential for retirement planning.

By the time you finish this post, you’ll be better prepared to tackle more than just a tackle rainy dayand you will know if your emergency fund is enough to get you through retirement stress and worry free.

1. Unexpected home repairs and maintenance.

No matter how well maintained your home is, something will always need to be fixed or replaced as you (and your home) age. From a new roof to a broken water heater, these expenses can really add up. And if you are on a fixed incomeit can be difficult to cover them without dipping into your savings.

You have to consider that as we get older, there will be more and more chores and home repairs that we cannot handle ourselves. Jumping on a ladder to clean the gutters in a two-story house might be something we’re comfortable with in our thirties or forties, but it’s not worth the risk when we’re over 65. Many retirees count on their children or grandchildren to help them with these types of tasks. However, this is not an option for some, so they will have to pay someone else to help them, adding more expenses to their budget as time goes by.

In addition to everyday chores and errands like those mentioned above that add up over time and slowly but steadily creep up your budget, there can be some big one-time expenses to look out for. Fixing a broken roof is one example, but you may also need to make major changes to accommodate new health conditions. For example, if, for whatever reason, you end up in a wheelchair, you may need to do a general renovation of your home to improve accessibility in general. This means adding ramps to supplement or replace stairs, possibly adding a stairlift if your home is two stories tall, etc. These expenses can push your budget to the breaking point, but are necessary.

How to reduce these expenses

One way to offset these expenses is to do any repairs and improvements before retirement so it doesn’t come as a shock when you’re on a fixed income. Adequate home maintenance is critical, as is having an engineer inspect your home before you retire to identify any critical areas that may need attention.

If there are improvements or repairs you know you’ll need to make, try to do them little by little so it’s not such a shock to your budget when retirement comes. For example, if you know you’ll likely need a new roof in 10 years, start putting money aside now so you’re not hit with the full expense at once.

Another way to reduce these types of expenses is to consider downsizing to a smaller home or an apartment when you retire. This can significantly reduce your maintenance and utility expenses while still living comfortably in retirement.

2. Unexpected health care costs.

Even though it is not their biggest expense, health care costs are one of the biggest worries of American retirees. Even if you have good health insurance, retirement is when you are likely to incur more medical bills. Whether it’s for regular checkups or illnesses, those costs can really add up. And if you don’t have good health insurance, it can be even more of a strain on your budget.

Health care costs consist of insurance premiums and out-of-pocket expenses. While premiums are mostly fixed payments and highly predictable, out-of-pocket expenses are highly variable in nature and depend a lot on the type of coverage you pay for.

Let’s look at three different scenarios based on current data from 2022:

  • Medicare Parts A, B and D: If you file for Medicare Parts A, B, and D, your premium will account for approximately 77% of your total medical expenses in retirement. In comparison, the variable out-of-pocket portion accounts for the remaining 23%. For nearly half of retirees, these variable expenses represent less than $900 per year, but for 10% of retirees, they are more than $5,000.
  • Medicare Parts A, B and D plus Medigap: In this case, the share of the premium and out-of-pocket expenses is similar to the previous one. However, the threshold for the highest 10% of variable costs starts at $4,000 instead of $5,000. This means that retirees who choose this coverage are likely to spend less out-of-pocket on major health care costs.
  • Medicare Benefit: In the case of Medicare Advantage, out-of-pocket expenses fall compared to premiums, the former accounting for 17% of total health care costs and the latter 83%. This means you pay more in premiums but reduce your variable expenses, adding some financial security in retirement.

How to reduce this risk

The most obvious way to minimize health care costs in retirement is taking care of yourself while you’re young. Eating healthy foods, getting a good night’s rest and getting plenty of exercise will help you stay in good health and avoid some of the more common diseases that come with age.

In addition, as we have just seen, choosing the right type of health insurance can significantly affect variable and unexpected health care costs. Premiums will be higher, but they will also be predictable, which will help you plan when setting up your retirement budget.

3. Unplanned relocation costs.

For most people, retirement is a time to relax and take it easy. But for some it is also a time to relocate, either closer to family or looking for better weather. These changes are usually planned, so you can always be prepared for them when the time comes. You can even pause until you have saved enough to go through with the relocation.

However, there are several situations when you are forced to move unexpectedly. The most common is when a family member has to move for medical reasons. If your spouse or child needs to be closer to a specialized treatment center, you may have no choice but to move.

Other unplanned relocations include job loss, divorce, expulsion and exclusion. In either of these scenarios, you will be forced to move and may need to find a new place to live at short notice.

This can be a significant financial burden as you will have to pay for moving costs, deposits and other associated expenses.

How to reduce this risk

The best way to reduce the risk of unplanned relocation costs is to have an emergency fund. This will give you the financial flexibility to handle unexpected expenses, such as moving costs, without going into debt or having to dip into your retirement savings.

Ideally, your emergency fund should cover 3-6 months of living expenses, including rent. This will give you enough time to find a new job or make other arrangements if forced to move out.

4. Unexpected tax hits.

You may think you have all your taxes figured out in retirement, but there can be surprises. For example, if you have a pension or other sources of income, you may find yourself in a higher tax bracket than you expected. Or, if you take distributions from your retirement accounts, you may be subject to higher taxes on them as well.

Another common problem is that, as you get older, you may be subject to higher taxes on your Social Security benefits. Up to 85% of your benefits can be taxed, depending on your income level.

In the case of annuities, if you have a qualified annuitymeaning you paid for it with pre-tax dollars, you still have to pay income tax on all withdrawals and distributions once you retire and start receiving payments. This is only to be expected, since qualified annuities are a standard tax-deferred investment tool for retirement.

On the other hand, many retirees do not know that if you have a unqualified annuity by paying with after-tax dollars, you may still have to pay taxes in retirement. This is because you only paid tax on the income you used to pay for the annuity, but annuities grow over time at a fixed or variable rate, meaning you’ll earn more money as a result of your investment . This extra money you earned has not been taxed yet, so it will be taxed once you retire.

Although the tax burden will not be as high as with a qualified annuity, its unexpected nature can throw your finances off balance.

How to reduce this risk

The best way to reduce the risk of unexpected tax hits is to stay on top of your taxes throughout retirement. This means keeping track of all your sources of income and ensuring you are withholding the correct amount from each.

You should also review your tax situation annually and adjust your withholdings accordingly. If this seems like too much of a hassle, you can always hire a tax professional to help you, although this will also mean more expenses.

5. Your spouse’s death.

If you are married, one of the most important financial risks in retirement is the death of your spouse. Not only will this represent a huge emotional loss, but it will also have a significant impact on your finances. This is because in most cases couples rely on each other’s income to make ends meet. If one spouse dies, the other will often struggle to get by on a single income.

In addition to losing income, a spouse’s passing also comes with other one-time expenses, such as funeral costs. This can be significant, as funerals are not cheap.

In general, the death of a spouse can be such a significant financial burden that it can force even the surviving spouse to return to work, move to a smaller, less expensive place, and even sell some of their possessions.

How to plan for this risk

Death is the only certain thing in life, and planning for our death or the death of a loved one is an unpleasant but necessary task.

There are several ways to plan for this risk. One way is to have life insurance. If something happens and your spouse dies, a life insurance policy will provide you with a financial safety net so you don’t have to worry about money, at least for a while.

If you plan to buy an annuity to ensure income during retirement, add a living advantage rider will ensure that you or your spouse will continue to receive income payments each month when one of you dies.

The bottom line

The key to an enjoyable and financially free retirement is to plan. Planning starts with covering all your essential expenses, but doesn’t stop there. You also have to account for the unexpected, because life has a way of throwing us curveballs when we least expect it. By being prepared for the five risks discussed above, you can be sure that your retirement will be everything you hoped for, even if the road gets a little bumpy along the way.

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