When it comes to planning for retirement, the process seems pretty simple: contribute to your IRA or 401(k), put extra savings aside each month, and reduce your spending as much as possible as you get closer to retirement. Once you are ready to retire, you should be able to rely on a combination of your investments, Social Security, your savings and Medicare to cover your needs.
However, many people find themselves facing surprise expenses that they didn’t expect or plan for— or ones they probably should have considered prior to retiring.
Surprise and unplanned expenses can consume a large amount of your retirement savings and in some cases derail your long-term retirement plans. Here is a list of some of the most common ones:
Boomerang kids. Young adults today are relying on their parents much longer than they used to due to staying in school longer, delaying marriage, or waiting until they are much more financially stable before setting up their own household. In the past, most children left their childhood homes in their 20s, however today’s generation are staying until into their 30s which financially impacts parents’ ability to save for retirement. Parents should set clear expectations of when financial support will continue and when children need to start supporting themselves.
Elderly parents. Many baby boomers today are finding themselves living with or caring for their elderly parents. In some cases they find themselves caring for both adult children and elderly parents at the same time making it harder to adequately save for retirement. Having open conversations with elderly parents may help anticipate whether they will need to provide support for parents and what that financial obligation looks like.
Maintenance. Routine maintenance of cars and homes is the most common unexpected expense. Even if a home or vehicle is paid off, there are still costs associated with keeping them in good functioning shape. A major car failure or having to replace an appliance in the home may not be something that most people plan for or have savings set aside to cover. It’s a good idea to have a separate emergency fund for such instances.
Renovations. Many retirees choose to stay in their homes during their golden years, but don’t plan for renovations needed to make the home more accessible. This includes widening doorways to accommodate walkers or wheelchairs, upgraded lighting, more accessible bathrooms with grab handles or special showers, and other changes like installing nonslip flooring or level door handles for easy opening.
Health care expenses. By the time you are ready to retire, most people will be able to take advantage of government programs to pay for the bulk of their health care costs, but only parts of Medicare are free, and many Medicare recipients may have to pay a monthly premium. Medicare may not cover most dental care including dentures, hearing aids, and a slew of other things. Having enough money set aside in savings to cover these costs may be something you’ll want to consider.
Divorce. Divorce rates among those 50 and older is on the rise as empty nesters struggle to make their marriage work without the kids in the house to focus on. A divorce means dividing assets between both spouses which means less money to invest, grow, and live on. Expenses will increase as the spouses will now believing in 2 separate locations now and no longer sharing some bills like utilities, rent or a mortgage, etc.
Long term care or nursing homes. Some people are able to buy long term care insurance; however this is usually pretty costly, especially as you get closer to retirement. However, paying for a long-term care or nursing facility can easily chew up much of your retirement savings if you don’t plan ahead. If an illness or long-term injury makes itself known early on, it may be time to redo your retirement plan to include these extra costs.
Overspending. This seems obvious, but many retirees, especially those who retire at a younger age, still want to have fun, travel, and stay active. This is all well and good, as long as you plan and budget those expenses into your retirement plan. If you are already cutting it close to pay bills and live comfortably, cutting back on some of the luxuries and non-essentials may be necessary.
With many people living much longer than they used to, it’s an opportunity to enjoy friends, family and hobbies more, but it also increases expenses and how you plan for retirement. While there is no way to eliminate most of these expenses in retirement, you can certainly save and be as prepared as possible to handle anything unexpected. Our team is always here to help you set up any savings account needed to help you plan for your future – stop in or give us a call!
Vice President, Lakeville Manager