One of the first steps when preparing for retirement is to figure out how much you expect to spend each year. But few are aware of the hidden expenses that could set back your retirement plans.
Managing your money can be complex, and there’s endless advice out there about how to best handle your money — especially when it comes to investing and preparing for retirement. By the time you reach retirement, managing your income and expenses will hopefully have become second nature to you; but once entering your golden years, you’ll inherit new financial responsibilities you may not have thought of.
Here are three hidden expenses to watch out for that can derail your financial retirement income plans.
1. Healthcare
While this may be an expense you are expecting, we often overlook just how much we will have to spend on this in retirement.
Various industry research has concluded that 69% of baby boomers and 66% of retirees estimate their health-care costs in retirement to be “$100,000 or less.” However, those estimates are below Employee Benefit Research Institute projections that the average 65-year-old man would need $127,000 in savings, and a 65-year-old woman would need $143,000, to give each of them a 90% chance of having enough savings to cover health-care expenses in retirement.
Even with Medicare coverage, seniors still incur substantial out-of-pocket costs. EBRI projects that a couple who are Medicare beneficiaries and want to be confidently prepared for the higher end of prescription drug costs would need to have $368,000 in savings to cover premiums, deductibles, and other out-of-pocket expenses.
2. Debt
As CKS Summit Group reported in a recent blog, debt among older Americans is rising fast. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data, Americans ages 60 to 69 had $1.99 trillion dollars in overall debt at the end of 2017, up from $1.33 trillion in 2007; and Americans age 70-plus had $957 billion in overall debt in 2017, up from $457 billion in 2007.
Carrying debt into retirement will lower your chances of ever paying it off, but you’ll also risk struggling financially when your debt payments monopolize too much of your limited income.
3. Unexpected Emergencies
If you think you’ve checked off all your retirement expenses, including housing, healthcare, utilities etc, you could be setting yourself up for failure if you don’t include an emergency fund for the unexpected.
A prime example is long-term care. Whether it is caring for a spouse or even their own parents, retirees are among the 40 million people nationally who provide adult family caregiving services without payment, according to the AARP. And these caregivers don’t only contribute time. The AARP reports that they spend an average of $6,954 a year on actual costs out of their own pockets in addition to the hours they commit.
Women, in particular, can be affected disproportionately by unexpected expenses, since they are more likely to face costly health challenges, become caregivers, or outlive their spouses, any and all of which can lead to greater financial stress.
Overcoming Risks of Derailment
So what is the solution for eliminating the risks of blowing your retirement savings? Income planning for a lifetime.
Too many Americans believe they have enough set aside and retirement will be a financial breeze to manage. The reality is that it isn’t easy; it takes careful planning to make those savings last a lifetime. When you’re researching into what retirement portfolio is best for your needs, consider a Lifetime Income Portfolio.
A lifetime income portfolio is designed to simultaneously generate stable growth, increase income, and preservation of principal throughout your lifetime, with only limited downside market risk.
Researching your options and identifying potential financial risks is crucial when preparing for retirement; even one seemingly harmless mistake could cost you thousands of dollars. But by doing your research ahead of time, you’ll be able to enjoy your later years to the fullest.