Seven Surprise Expenses Than Could Derail Your Retirement

Unexpected expenses could blindside you and wreck your retirement plans. Discover the seven top surprise expenses you should plan for now.

In my article, What? More Retirement Decisions? I provide the basics of retirement planning – how, when, and where. It provides basic information for Social Security, Medicare, taxes, wills, and more.

Once you know the retirement income basics, it’s time to go a step further and plan for those “surprises” than can sink your well-made plans.

Uncovered Medical Expenses

One of the biggest surprises for retirees is medical expenses. To start with, Medicare isn’t free. You pay for it. And many find out the hard way that Medicare doesn’t cover all medical expenses.

Medicare has Part A, which covers hospital stays, and Part B, which covers doctor visits. All other expenses, including the copays, are paid out of pocket. One of the things you can do to mitigate some of that additional expense is to purchase additional insurance plans to supplement Medicare.

Medigap plans supplement Medicare, but you may need to pay for additional policies for hearing, vision, dental, and prescription coverage.

Medicare Advantage plans (Part C) are another option. Some cover the same things as a supplement policy, but include other coverage, like hearing, vision, dental, and even prescriptions. There may be restrictions on which doctors or facilities you can use.

Please do your research before you turn 65 and are able to sign up for Medicare. Talking to an insurance broker who specializes in Medicare could be your best option. You can also find most of the information you need if you’re willing to do your own research. Check out the Medicare website.

When considering your monthly expenses, factor $450–850 for routine medical expenses, including your premiums.

Outliving Your Savings and Investments

Most people retire in their mid-sixties, and the average length of their retirement is 20 years. Do you have enough investments, savings, and Social Security benefits to sustain you for the next 20 years or longer?

You may live for a long time but cannot care for yourself. Having the funds for home health care or assisted living should be part of your plan.

And, finally, in case you become incapacitated, long-term care insurance should be part of your retirement plan.

Losing a Spouse

Losing a spouse is an emotional hit, but it can also hurt financially. First, you must pay for the funeral. The median cost of a funeral is $7,848. Will this expense hurt you financially?

If you both receive Social Security, one check is about to disappear. You can choose the higher benefit as a survivor, but it’s still less.

Think about this when you’re making plans to retire. The longer you work, the larger the benefit, and possibly a larger survivor benefit for your spouse.

Because income disappears when a spouse dies, purchasing life insurance before retiring is prudent.

When purchasing life insurance, review your net worth and future income goals. Consider what would be lost if a spouse dies, and plan your insurance benefits accordingly.

If your spouse or you have a pension, check before you retire about survivorship benefits. When you opt for a survivor benefit, it reduces the monthly payment. But it allows the surviving spouse to continue receiving benefits after the spouse dies.

Adult Children and/or Aging Parents

You might be part of the sandwich generation if you’re Generation X. That’s where you have adult children living at home and aged parents who need care. This can drain a savings account.

Even if the adult children aren’t living at home, many retirees still give some support to their grown children. If you want to do that, ensure you budget with this in mind so you don’t drain your savings.

If you have older parents, you may find yourself supplementing their care. When you plan on retiring, consider the needs of your aging parents now and where you think they will be. Then, plan your retirement budget with that in mind.

Unexpected Housing Costs

How old is your home? Almost 80 percent of people 65 and over own their house. Most of them bought it years before retiring. Is the roof new? Are there any problems with the furnace? How about those leaky windows? All of these are major expenses.

Have your home inspected before you retire to uncover any surprises while you still have a higher income. One percent of your home’s total value should be the yearly budget for maintaining your home.

Does your house have stairs? If you plan to live in the house for a long time, you may need to make upgrades and disability-related accommodations. If you become wheelchair-bound, can you go through the door?

This is not the fun part of retirement, but it is better to plan for it now than to be surprised later.

Underestimating Monthly Expenses

Sit down and go over monthly expenses. Take into account:

• home
• utilities
• insurance
• food
• gas
• taxes
• etc.

Every monthly bill should be counted. Add your hobbies or leisure time expenses once you’ve determined your monthly expenses. The point is to know exactly how much money you’ll need on an ongoing basis. Don’t plan that trip of a lifetime until you’re sure it won’t wreck your retirement finances.

Inflation that Eats Away Your Savings

Inflation has caught a lot of retirees off guard in the past few years. It has eaten away at retirement savings accounts.

It’s important to have savings in high-yield accounts and diversify investments to stave off inflation.

Even if we have 3 percent inflation yearly, in 20 years, inflation will slash through your retirement.

Be Prepared Before Retiring

Numerous surprises happen after your retirement, and many of them are financial. So, protect your nest egg and plan out your retirement. Don’t just think about that boat or trip you’ve been meaning to take—think worst-case scenario.

It’s not the fun part of retirement, but it’s necessary to ultimately enjoy your retirement.