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Despite your best planning and efforts for retirement, you may still encounter some unexpected challenges after you stop working. Here are five retirement surprises that could send a financial shock to many older workers, according to Charles Schwab. However, if you’re prepared, you can avoid seeing these distractions ruin your golden years.
“Taking an extra $10,000 from savings to buy a new roof may not seem like much in the grand scheme of things, but if you don’t anticipate it, it can interfere with plans for other expenses, especially since those funds are now no longer in the market,” said Rob Williams, managing director of financial planning at the Schwab Center for Financial Research.
Consider working with a financial advisor to create or update a retirement plan.
According to the Society of Actuaries, unexpected home repairs are the most common surprise. This could include the need for a brand new roof, furnace and air conditioner, major plumbing issues, and other issues that may be lurking in a paid-off home you’ve owned for years.
Experts recommend setting aside 1 to 2 percent of your home’s current value for annual maintenance and repairs, and have your home thoroughly inspected by a professional to help you identify potential problems. Another consideration is to budget for improvements that can help you age well, such as wheelchair access, walk-in showers, better lighting, ergonomic door handles, and more.
The hidden retirement costs you should plan for, says Schwab
Health care is the single largest item retirees need to consider. While health insurance is a great benefit for retirees, don’t assume it covers everything. Although Medicare Part A covers hospital stays and Part B covers doctor’s visits, you will still face prescription costs and out-of-pocket costs for services. Additionally, basic health insurance does not cover dental, vision, and hearing care.
Adding Medicare Part D coverage can handle prescription costs, while adding private Medigap coverage can handle costs that Medicare doesn’t cover. Another option is to look at one of the many Medicare Advantage plans, which include Parts A and B and can add coverage for vision, dental and other expenses.
Retirees should budget $450 to $850 per person per month, including insurance premiums and out-of-pocket expenses. If you have the option while working, consider opening a health savings account (HSA), which allows you to save and invest tax-free and is not taxed on withdrawals for qualified medical expenses, including Medicare premiums. If you need professional guidance in weighing the pros and cons of medical expenses in retirement, consider speaking with a financial advisor.
As you age, the cost of extended care can be staggering: A private room in a nursing home can cost more than $100,000 a year, while a home care aide costs about $50,000. Medicare does not cover long-term care, and Medicaid assistance is available only after retirees have spent their assets to qualify for low-income status.
While some retirees can rely on their own substantial savings or the help of 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 an annuity. The best time to buy long-term insurance is in your late 50s or early 60s.
It’s natural to want to help a son or daughter who is suffering from a financial crisis. Before disbursing funds from your retirement assets, determine how much assistance you can reasonably afford and set clear limits with family members. If you expect to be repaid, structure the loan with a written agreement. If you give directly, remember that gift taxes apply to any amount over $17,000 in a year.
In addition to the emotional impact of losing a life partner, there can be significant financial implications. To avoid this possibility, create a financial plan that includes the loss of a spouse, as well as an up-to-date will, power of attorney, and health care power of attorney. Even couples with modest financial circumstances can benefit from an estate plan.
Financial options include insurance to cover final expenses and loss of income, and structuring pension payments so that payments continue after the pensioner dies. There are also Social Security survivor payments to consider before you start receiving benefits. The surviving spouse can receive a portion of the deceased partner’s benefits as early as age 60 (or 50 if disabled). Delaying benefits after full retirement age increases benefit payments, which also leaves a larger benefit for the surviving spouse.
Consider using this free tool to be matched with a financial advisor for expert guidance on your retirement expenses.
Protecting your retirement assets is the most important financial move you can make once you stop earning income.
Thinking about how to handle medical bills and other unpredictable retirement expenses needs to be part of your retirement plan.
When and how to collect Social Security benefits is a major retirement consideration, along with estate planning, insurance, tax considerations and more. For help planning for your retirement, including how to pay for medical expenses, consider working with a financial advisor. It’s not hard to find one. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can interview your advisor matches for free to decide which one is the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started today.
Check out our retirement calculator for a quick estimate of whether you have enough funds to support the lifestyle you want.
Keep an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid—held in an account that is not at risk of large swings like the stock market. The trade-off is that the value of liquid cash may be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts at these banks.
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