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1 in 5 retirees don’t see this expense coming – or its $315,000 price tag

By on October 8, 2022 0

Close up of senior couple having breakfast and doing bills


Only about one in four retirees has not experienced any type of shock event in retirement, according to a study of the Society of Actuaries. And those shock events – like a huge dental bill, for example – often come with a shock price. This can be especially difficult for retirees, because unlike when someone works and generates a regular salary, retirees must rely on their long-term planning and set up monthly distribution checks.

The good news? Strengthening your savings can protect you against these shocks. “With retired customers, one of the most important things we talk about is how many months of distributions we want to set aside for extra cash for unforeseen or irregular expenses,” said Peter T. Palion. , certified financial planner and president of Master Plan. Council in East Norwich, New York. (See the best savings account rates you can get here.)

Take care of loved ones

It’s one of the most unexpected expenses in retirement and includes the medical needs of a spouse, parent, child or grandchild, says Spencer Betts, Certified Financial Planner , chief compliance officer and financial consultant at Bickling Financial in Lexington, Massachusetts.

“They’re almost impossible to predict, but caring for someone’s long-term care needs can get extremely expensive,” he says, adding that this kind of care could also include helping a loved one with addiction, a divorce settlement, bankruptcies and other financial needs. “Not only will this require financial resources, but it could include relocation and hours and hours of personal time.”

Caregiving causes a financial hit: For example, caregiver spouses aged 59 to 66 had 50% fewer IRA assets, 39% fewer non-IRA assets, and 11% fewer Social Security earnings, as well as less income than married people. non-caregivers, according to the report.

But planning for this phase can be especially difficult because of the large price difference depending on the care needed, says Betts. “On the inexpensive side, there’s basic care, like a traveling nurse who comes to your house a few times a week and makes sure you’re on medication and helps you with some basic chores. On the more expensive side, there are Alzheimer’s units that provide 24-hour monitoring of elderly patients.

The first step when it comes to planning for this phase of life is “to look at your family’s medical history,” Betts said. As well as considering long-term care insurance, he says it’s also imperative to investigate “the cost of care near you or where you’d like to retire” as this can ” vary greatly depending on your location”.

See the best savings account rates you can get here.

Health expenditure

Couples aged 65 or older can expect to spend about $315,000 after-tax on health and medical costs throughout retirement, a study from Fidelity found.

That said, it should come as no surprise that nearly a fifth of retirees say they are surprised by large medical and prescription costs, according to the Society of Actuaries report. “This does not include whether a client wants to move to a type of assisted living where they can have someone cook for them or have a nurse watch over them,” according to Christopher Lyman, financial adviser at Allied Financial Advisors at Newtown, Pennsylvania.

A report of RBC Wealth Management revealed that healthy 65-year-olds can expect to one day spend up to $100,000 a year on long-term costs, including retirement homes, home care, or hybrid options.

Lyman says an essential part of planning for retirement is considering your health and the quality of life you expect. You’ll need to factor in extra funds for specialist doctors and drugs in your later years, he said.

Home repairs

About 76% of people aged 65-79 and 68% of those over 80 currently live in single-family homes, a study finds report from the Joint Center For Housing Studies at Harvard University. In addition, nearly three-quarters of people 50 and older say they would prefer to stay in their current home as they age, according to an AARP. study.

With so many seniors owning and living in their own homes, the Society of Actuaries report found that 28% will one day have unplanned repairs or major renovations in retirement. The report also found that 16% of retirees said they were surprised when their home value dropped by more than 25%.

However, when it comes to planning home repairs in retirement, Palion always reminds its clients that these costs are bound to arise one day. “If you do all the housework when you’re not retired, you know things break down from time to time and need fixing, like your washing machine or your hot water boiler, or your roof or whatever. be.”

HELOCs or home equity loans and reverse mortgages are just a few of the potential options you may have to combat these unexpected expenses.

Betts says that when planning for her clients’ retirement, it’s essential to have more than one source of income to help cushion unexpected expenses related to home repairs. “If an unexpected expense arises, we have these two additional sources of income that hopefully won’t derail their retirement plans.”

See the best savings account rates you can get here.

dental work

When it comes to unforeseen expenses, major dental care ranks high with 24% of retirees saying they were shocked by the amount they had to spend in retirement, according to the Society of Actuaries report.

Most seniors can expect to spend more than $20,000 in dental premiums and more than $12,000 in shared costs from age 65 in 2022 to age 87, according to HealthView Insights research. And while Medicare does cover some things, HealthView Services president Ron Mastrogiovanni points out that it “doesn’t cover dental care for things like fillings or tooth extractions, and that’s why people should seriously consider dental coverage.”

To avoid unnecessary stress and better plan for these expenses in retirement, Palion advises to drop the guesswork and assume that you’ll have to spend money on your teeth in retirement.

“The cost of dental care impacts everyone,” he said. “Everyone has teeth, so is it really unexpected when you need dental work? Unless you have implants, you would need dental work.

Accompaniment of adult children

Up to 52% of young adults today, ages 18 to 29, live with their parents, according to a Securian report. Nearly twice as many did so at the same age in 1960.

Why is it so difficult to factor this into retirement planning? “We can’t financially model these expenses and they often occur at inopportune times, such as during a recession,” said Tom Balcom, CFP and founder of 1650 Wealth Management in Fort Lauderdale, Florida.

Is there anything that can be done to incorporate these potential expenses into your long-term savings plan? Balcom says his company suggests working with adult children to create their own budget and ensure they don’t overspend. “I often call this difficult financial love,” he said. “If you’re making $50,000 a year, you can’t spend $2,000 a month on rent.”

Balcom’s company also advises customers to store up to six months of financial reserves in addition to retirement funds. “With a number of hedged investments, our clients are still likely to have something that has appreciated, so the buy low, sell high strategy should still work.”

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