Despite your best planning and efforts to prepare for retirement, you are still likely to encounter unexpected challenges after you stop working. According to Charles Schwab, there are five retirement surprises that could come as a financial shock to many older workers. However, if you are prepared, you can avoid having these disruptions derail your golden years.
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“Withdrawing an extra $10,000 in savings for a new roof may not seem like a lot in the grand scheme of things, but it can interfere with plans for other expenses if you haven’t anticipated it, especially since those funds are no longer in the market,” says Rob Williams, managing director of financial planning at the Schwab Center for Financial Research.
Hidden Housing Costs
According to the Society of Actuaries, unexpected home repairs are the most common surprise. This can include the need for a completely new roof, furnace and air conditioner, major plumbing issues, and other issues that may be lurking in a paying house you’ve owned for years.
Experts recommend setting aside 1-2% of your home’s current value for annual maintenance and repairs, as well as having your home thoroughly inspected by a professional who can help identify potential problems. Another consideration is budgeting for upgrades that can help you age in place, such as wheelchair access, a walk-in shower, better lighting, ergonomic door handles and more.
Health costs not covered
Health is the most important item for retirees to consider. Although Medicare can be a huge benefit for retirees, don’t assume it covers everything. Although Medicare Part A covers hospital stays and Part B covers doctor visits, you will still incur prescription fees and a co-payment for services. In addition, dental, vision and hearing care are not covered by basic health insurance.
Adding Medicare Part D coverage can manage prescription costs, while Medigap private insurance can be added to manage expenses not covered by Medicare. Another option is to check out one of the many Medicare Advantage plans, which include Part A and Part B and can add coverage for vision, dental, and other expenses.
Retirees should budget between $450 and $850 per month for each person, including insurance premiums and out-of-pocket expenses. If you have the option while you work, consider opening a Health Savings Account (HSA), which lets you save and invest tax-free and doesn’t tax withdrawals for eligible health expenses, including health insurance premiums.
Long-term care
The cost of extended care as you age can be shocking: a private room in a nursing home can cost upwards of $100,000 a year, while home help will set you back around $50,000. Medicare does not cover long-term care, and Medicaid assistance is only available after retirees have expended their assets to qualify for low-income status.
While some retirees may rely on their own substantial savings or help from family members, another option is to purchase long-term care insurance or add a long-term care rider to a whole life insurance policy or annuity. The best time to buy long-term coverage is in your 50s or early 60s.
Help for adult children
It is natural to want to help a son or daughter hit by a financial crisis. Decide how much help you can reasonably afford and set clear limits with family members before handing out money from your retirement assets. If you expect to be repaid, structure the loan with a written agreement. If you donate money directly, remember that gift taxes apply to any amount over $17,000 made in one year.
Death of a spouse
Beyond the emotional shock of losing a life partner, there can also be significant financial implications. To avoid this possibility, prepare a financial plan that includes the loss of either spouse, as well as an up-to-date will, power of attorney, and power of attorney for health care. Even a couple with simple finances can benefit from an estate plan.
Financial options include insurance to cover terminal costs and loss of income, as well as structuring pension payments so that they continue after the death of the pension recipient. Social Security survivor payments should also be considered before you start collecting benefits. Surviving spouses can receive part of the deceased spouse’s benefits from the age of 60 (or 50 in the event of disability). Delaying benefits past full retirement age increases the payment of benefits, which also leaves more for a surviving spouse to collect.
Conclusion
Once you’ve stopped earning income, protecting your retirement assets is the most important financial step you can take.
Thinking about how you will manage health care expenses and other unpredictable retirement costs should be part of your retirement planning.
Financial advice on retirement
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When and how to collect Social Security benefits is a major retirement consideration, along with estate planning, insurance, tax considerations and more. To help you plan for your retirement, including how to pay for health care, consider working with a financial advisor. Finding one doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors who serve your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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