Your Retirement Budget: 5 Expenses You Might Be Forgetting

You don’t have to be psychic to plan a successful retirement. However, understanding the potential impact of unexpected expenses is crucial.

An additional withdrawal to repair your roof or cover an extended hospital stay might seem manageable in the moment, but they could disrupt your years of careful planning and long-term goals.

That’s why your retirement spending plan needs to be prepared for obstacles as much as possible. Here are five commonly overlooked expenses that can throw a wrench in your retirement budget—plus tips on how to prepare for them.

1. Hidden Housing Costs

While many retirees consider their mortgage or rent, fewer account for ongoing maintenance, repairs and potential modifications. According to research by the Society of Actuaries, unanticipated home repairs are the most common financial surprise for retirees.

• Maintenance and Repairs: A common rule of thumb is to budget 1% of your home's value annually for maintenance and repairs. For example, on a $300,000 home, set aside $3,000 per year.
• Modifications: If you plan to age in place, include costs for accessibility upgrades like ramps or wider doorways. But if you think downsizing makes more sense, consider the pros and cons, as covered in this article.
• Insurance: Shop around for homeowners insurance. An independent broker can help compare rates from multiple companies to ensure you're getting the best value.

Pro Tip: Build a home repair fund before retirement to reduce the need for large, unexpected withdrawals.

2. Uncovered Health Care Costs

Health care is likely to be your largest expense in retirement. Fidelity estimates the average 65-year-old retiring today will spend $165,000 on medical care over their lifetime. Even with Medicare, many costs, including dental, vision and hearing care, are not covered.

To bridge the gap:

• Understand Medicare Options:
  • Original Medicare (Parts A and B) covers hospital stays and doctor visits but excludes dental, vision, and prescription drugs.
  • Supplemental plans like Medigap or Medicare Advantage can help fill these gaps but come with trade-offs. For instance, Medigap plans have higher premiums but fewer out-of-pocket costs, while Medicare Advantage plans may limit provider access.
• Save with an HSA: If eligible, contribute to a health savings account (HSA) while working. HSAs offer tax-free growth and withdrawals for qualified medical expenses, including Medicare premiums. Learn more: 5 Key Advantages of HSAs for Retirement.

Pro Tip: Review your current and future health care needs annually to ensure your coverage fits your situation.

3. Long-Term Care Costs

Nearly 70% of people over 65 will need long-term care, according to the U.S. Department of Health and Human Services. With long-term care costs for in-home aides averaging $75,504 annually and nursing home private rooms exceeding $116,000, planning ahead is crucial.

You have two primary options:

• Out-of-Pocket: This approach requires significant savings and is most suitable for those with substantial assets. Keep in mind, there are also emotional and financial costs for family caregivers.
• Long-Term Care Insurance: Purchasing a policy in your 50s or early 60s when you're still healthy can secure lower premiums. While you may never need it, the peace of mind and financial protection it offers can outweigh the cost.
• Other Options: Learn what other strategies may be available to you by downloading our free guide, Options for Funding Long-Term Care Expenses.

Pro Tip: If leaving a financial legacy is important to you, a long-term care funding plan can help preserve your assets for your heirs.

4. Supporting Family Members

It’s natural to want to help an adult child or grandchild in need, but dipping into your retirement savings can jeopardize your financial stability. Nearly half of parents who help adult children say it puts their retirement at risk, according to one survey.

Here’s how to manage this scenario:

• Set Boundaries: Clearly communicate how much help you can offer and for how long. Decide if the assistance is a loan or a gift and ensure everyone is on the same page.
• Avoid Overspending on Grandchildren: Many grandparents overdo it with their first grandchild, only to feel obligated to match the generosity with others later. Instead of overspending, focus on creating memories together.

Pro Tip: Build an emergency fund specifically for family-related support so it doesn’t disrupt your retirement budget.

5. Losing a Spouse

Losing a spouse is emotionally devastating, but the financial impact can also be significant. Reduced income from pensions or Social Security, along with new expenses like legal or funeral costs, can strain your finances.

Here’s how to prepare:

• Life Insurance: A life insurance policy can replace lost income and help cover large expenses. For most people, term life insurance is a suitable option.
• Pension Survivorship Options: If you or your spouse have a pension, consider electing survivor benefits before retirement to ensure continued payments.
• Social Security Timing: If you're the higher earner, delaying benefits until age 70 ensures the largest possible payout for you and your surviving spouse.

Pro Tip: Keep your estate plan up to date to simplify asset transfers and minimize stress for your loved ones.

Bottom Line

Life’s surprises don’t stop when you retire. Building a comprehensive retirement plan that accounts for these often-overlooked expenses can make all the difference in maintaining your financial confidence.

Consider working with a financial adviser who can help you anticipate potential hurdles and develop strategies to handle them. With the right preparation, you can focus less on the “what-ifs” and more on enjoying retirement.

Get started today by scheduling a free retirement consultation with Advance Capital Management.