One of the biggest retirement planning mistakes you can make is not knowing how much money you will need to live comfortably. Don’t get caught off guard by these often-overlooked expenses that could derail your dream retirement.
“How much money do I need for retirement?” The answer depends largely on your current income and the lifestyle you want when you retire. Retirees planning their future financials may think they covered all their bases by accounting for housing, transportation costs, entertainment etc. However, they could be setting themselves up for financial failure if they don’t consider other unforeseen expenses that might be lurking in their future.
Here, CKS Summit Group reveals four unexpected expenses you may not have thought of, and how to prepare for them.
1. Unexpected Emergencies
Your roof is leaking. Your car breaks down. Your water heater busts. Just because you’re supposed to be enjoying your golden years, that doesn’t mean that unexpected financial emergencies pop up – uninvited as they may be.
A good way to account for these seemingly ‘out of the blue’ costs is to use the 1% rule: On average, you should anticipate spending 1% of your home’s total sale price on maintenance annually. So if your home cost $500,000, you should expect to pay an average of $5,000 a year to maintain it. Similarly, for the average car, you can set aside about $100 a month to meet your auto repair costs over the course of the year.
To cover all your possible emergencies, most experts recommend having three to six months’ worth of emergency savings during your working years. But in retirement, you may want to increase that to 12 or even 18 months’ worth if you want to be on the safe side and ensure that you’ll have enough money to cover any curve balls life may throw at you.
By ensuring you have an emergency budget aside, you’ll decrease the probability of tapping into your retirement savings.
2. Healthcare
We’ve covered the extreme costs of healthcare before, (see ‘Healthcare in Retirement Explained’ here), however this is a topic well worth revisiting if you’re going to factor in this huge expense.
Some healthcare costs – checkups, prescriptions, minor illnesses etc – are normal expenses that you can budget for. But if you’re in a car accident or your appendix bursts, that’s a whole new dilemma. According to CostHelper, if you end up being admitted to the hospital for surgery or critical care, you could face bills of $20,000 or more.
The solution? The easiest way is simply to try not to get sick. Eating well, exercising, washing your hands and staying hydrated all help this cause. But even if you’re the healthiest person in the world, that doesn’t prevent you from becoming injured. This is exactly why everyone needs health insurance. According to eHealth, the average cost of a policy is $321 a month for a single person and $833 for a family. However, under the Affordable Care Act, you can get a subsidy to cover part of that cost if your income is low. Make sure you’re properly covered before you retire.
3. Housing
According to the GAO, housing is what individuals spend the most on, especially for older Americans as they pay more for maintenance as their houses age too.
You may be close to paying off your mortgage, but housing still costs the average retiree $16,723 per year on housing. While that number includes rent/mortgage, insurance, and, if applicable, property taxes, maintenance, and repairs, it doesn’t include utilities like heat, electricity, and water, nor does it include household amenities like cable and internet service.
To ensure this is cost is affordable to you, you may need to consider adjusting your living situation. Downsizing your home or renting out extra rooms can help this expenditure dramatically. Similarly, moving to a less popular or convenient neighborhood could have the same effect, though you’ll need to weigh the drawbacks and costs of being further away from shops and amenities against the savings at play.
Then there’s the cost of moving to a retirement community setting. All-inclusive retirement living can mean anything from independent living in your own apartment to round-the-clock care in a skilled nursing community. According to the U.S. Government Accountability Office, that fee varies wildly: expect to pay between $1,800 to $600,000. That’s too wide a margin to be helpful, but it speaks to the sheer variety of options out there.
Being realistic about the costs you’ll incur with housing in retirement will ultimately help you financially prepare in the long-run.
4. The Gray Divorce
One unusual retirement complication that has popped up among Boomers and older Gen X-ers is an increase in divorces, otherwise known as a Gray Divorce.
Reasons for this new “phenomenon” include:
- Postponed divorces: Waiting for the children to grow up prior to separating.
- Empty nesters: Marriages struggle to survive with the children gone.
- Retirement changes: New lifestyle changes can negatively affect the marriage.
- Financial reasons: Waiting to be financially ready to part ways.
Typically, the longer you’ve been together, the more assets you’ve acquired, and the more expensive the process with legal fees – with a divorce attorney charging you anywhere from $250 to $650 an hour (depending on your ZIP code) which can amount to hundreds of thousands of dollars. And you have less time to recover financially from divorce the closer you are to retirement.
If you’re facing a Gray divorce, the best way to keep down costs is to figure out a way of staying amicable and figuring out the precise value (and amounts) of every asset before meeting with attorneys. Meet with your Financial Planning professional and your accountant, together with your spouse (if possible) to minimize expenses for both parties.
Final Thoughts
Does your retirement budget account for all of these costs? Even for the most prepared retiree, unexpected expenses during retirement can derail a carefully crafted financial plan – with some risks being more obvious than others.
Anticipating these common budget-busters could help you prepare for a more comfortable and less stressful retirement.
Retirement Income Planning with CKS Summit Group
Celebrating 21 years, CKS Summit Group is a retirement income planning firm headquartered in Clinton Township, Michigan with clients throughout the United States.
Our focus is to bring you fresh new ideas for your retirement income. Our cutting edge tactical portfolios help our clients achieve safe, healthy growth of their savings and preservation of their principal balance.
We design plans which are specifically structured to limit downside stock market risk. This allows us to protect our client’s assets while providing them with strategies for achieving effective tax reduction and inflation protection.
So what are you waiting for? Come experience the new evolution of Retirement Income Planning with the retirement planning experts at CKS Summit Group. For more information, visit us online here, or call us to set up a complimentary strategy session today on 586-286-5820.
