Retirement is a long-awaited milestone that allows you the freedom to enjoy life without the worries of work. But a surprise expense can derail your retirement dreams. Don’t get caught off guard by the following unexpected expenses.
1. Healthcare and medical expenses
Healthcare is one of the most significant expenses faced by many retirees. Many people find that their healthcare and medical expenses increase as they age, and while Medicare covers some expenses, it likely won’t pay for everything. Costs related to prescription medications, dental and vision care, and long-term care can quickly add up. To prepare:
• Estimate your healthcare needs — Consider your medical history, family health issues, and any lifestyle factors that may impact your future healthcare costs.
• Research your health insurance options — Understand the Medicare plans and supplemental insurance policies available to you and select a combination of coverage to meet your specific needs.
• Establish an emergency healthcare fund — Set aside funds specifically for unexpected medical expenses. A tax-efficient way to save during your working years is through a health savings account (HSA).
2. Home repairs and maintenance
Many retirees spend more time at home, which means it’s important to ensure your house remains safe and comfortable. Unexpected repairs and home maintenance can put a dent in your savings. To prepare:
• Regularly maintain your home — On a regular basis, conduct a thorough inspection of your home and its systems to quickly identify and address any minor issues before they become major expenses.
• Establish a home repair fund — Similar to your emergency healthcare fund, set aside funds in a designated account to pay for unexpected home repairs without derailing your other plans.
• Consider downsizing — Moving to a smaller, more manageable home can help reduce both the costs and responsibilities of homeownership.
3. Travel and hobbies
Retirement provides an opportunity to explore the world and pursue new interests. But it’s important to ensure you have enough saved to cover these expenses. Fluctuating travel prices, currency exchange rates, and unforeseen expenses during your travels can impact your ability to live out your dreams. To prepare:
• Research and plan ahead — Establish a budget for any anticipated trips that include costs such as transportation, accommodations, meals, and activities.
• Consider travel insurance — This can help protect your finances from unexpected expenses such as cancellations, medical emergencies, and lost luggage.
• Leave room in your budget — Maintain enough flexibility in your travel budget to cover spontaneous trips and leisure activities.
4. Grandchildren
Grandchildren can add welcomed expenses. If the possibility of grandchildren is in your future, you may want to set aside funds to spoil them, help with the cost of college, or travel to see them. To prepare:
• Budget for travel expenses — If your grandchildren live far away, you may wish to visit them often. Plan for airline and accommodation costs for such trips.
• Establish a 529 savings account — If your goals include helping to pay for your grandchildren’s college expenses, the best time to start saving is now. 529 savings plans provide a great opportunity to set aside funds in a tax-efficient manner.
5. Loss of a spouse
While none of us want to think about losing a spouse, it’s a reality faced by many retirees. Final expenses, such as medical bills and funerals costs, can quickly add up, and you may also lose some of your spouse’s Social Security or pension income. To prepare:
• Consider life insurance — A lump sum insurance payout can help pay for final expenses and offset the loss of Social Security or pension income.
• Research survivor benefits — If your spouse receives pension payments, consider opting for survivor benefits before you retire. Your wealth advisor can help determine what makes the most sense for your particular situation.
• Plan for Social Security — As you and your spouse are making Social Security decisions, consider that one of you may unexpectedly pass away sooner than expected. With this in mind, it may make sense to delay one spouse’s benefits.
Katie Stephenson, JD, CFP, is a Private Wealth Manager and Partner with Creative Planning. Creative Planning is one of the nation’s largest registered investment advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.