When you’re retired and living off your savings, unexpected expenses can undo years of planning. That’s why it’s important to anticipate and get ahead of as many unexpected costs as possible. Check out these six unexpected retirement costs that can upend your plan and how to prepare for them.
1. Health care expenses
Medicare provides good coverage, but Medicare beneficiaries still have to pay for many costs related to their health care including: services or supplies not approved by Medicare, monthly premiums, annual deductibles, coinsurance, copayments, dental care, hearing health care, vision care, prescription drugs, long-term care, ongoing home health care, health care outside of the U.S. and more.
How much money will you need for health care in retirement? While it’s impossible to predict what the future holds, a recent study found that a 65-year-old couple that retired in 2022 can expect to spend an average of $315,000 in health care and medical expenses throughout retirement. For single retirees, men can expect to spend $150,000, while women can expect to spend $165,000.1
These numbers may sound overwhelming, but retirees do have options that can help. Beneficiaries of Original Medicare can help fill coverage gaps with Medicare Supplement insurance. Or, some retirees choose to purchase a Medicare Advantage plan, which is an all-in-one plan that provides Medicare Parts A and B benefits, plus possibly Part D prescription drug coverage and more.
Some retirees make the mistake of believing that tax breaks for seniors will have them off the hook for owing Uncle Sam. The reality is, there are still taxes that affect retirees. After years of tax-deferred retirement savings, you’ll need to pay income tax on each withdrawal from your traditional 401(k)s and IRAs. However, by working with a financial representative and accountant, you can learn ways to strategically withdraw money from your retirement accounts and reduce your retirement tax bill.
Emergency expenses crop up from time to time, such as unexpected home repairs or family crises. It isn’t wise to disrupt your retirement drawdown strategy every time something breaks or goes wrong, so it’s important to make sure your retirement plan includes an emergency fund. This is money that’s set aside solely for the purpose of paying for emergency costs.
Is it possible you could become a grandparent to one or more grandchildren during your retirement years? It’s important to consider how this could change your financial priorities. Some grandparents travel frequently to visit their grandchildren. Others provide childcare. Each of these scenarios can quickly throw off a retirement budget. In addition, many grandparents like to set up trusts or contribute to 529 plans to help provide for their grandchild’s future. As you plan for retirement, consider how this could impact your retirement budget.
5. Long-term care
According to the U.S. Department of Health & Human Services, someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their aging years.2 Long-term care is one of the costliest, yet often overlooked, expenses you could face in retirement. Paying for long-term care out of pocket requires significant financial assets, so many people turn to long-term care insurance to help.
A long-term care insurance policy is designed to help you pay for the long-term care services you need. Long-term care insurance policies typically reimburse policyholders a monetary daily amount (up to a pre-selected limit) for assisted care services such as eating, bathing or dressing. You can usually select a range of care options and benefits that allow you to get the services you need, where you need them.
6. Loss of a spouse
It isn’t fun to think about, but losing your spouse or partner could make a big impact on your retirement budget. Final expenses, medical bills and funeral costs can add up fast and cost you tens of thousands of dollars—all while you’re dealing with the emotional shock of the loss. Many people believe life insurance needs end before retirement, but the reality is, most retirees can benefit from owning a life insurance policy. Owning life insurance in retirement can help you cover your final expenses, support your spouse or partner and leave a financial legacy to benefit your family for years to come.
We’re here to help you prepare for the unexpected
Unexpected costs in retirement are hard to prepare for, but our financial professionals are here to help you navigate the challenge. We can help you prepare for the unexpected so you can feel confident in your retirement plan. Contact us to get started.
1Business Wire, Fidelity Releases 2022 Retiree Health Care Cost Estimate: 65-Year-Old Couple Retiring Today Will Need an Average of $315,000 for Medical Expenses, https://www.businesswire.com/news/home/20220516005224/en/Fidelity-Releases-2022-Retiree-Health-Care-Cost-Estimate-65-Year-Old-Couple-Retiring-Today-Will-Need-an-Average-of-315000-for-Medical-Expenses, May 2022.
2U.S. Department of Health & Human Services, How Much Care Will You Need?, https://acl.gov/ltc/basic-needs/how-much-care-will-you-need, accessed 2023.