Exposing Five Hidden Costs in Retirement

By in
Exposing Five Hidden Costs in Retirement

When you’re living off your savings, unexpected expenses can undo years of diligent planning. Don’t get caught off guard by these often-overlooked expenses that could derail your dream retirement.

When every dollar counts, your retirement spending plan needs to anticipate obstacles as much as possible.

At CKS Summit Group, our advisors hear one common question time and time again, “How much money do I need for retirement?”. The answer depends largely on your current income and the lifestyle you want when you retire, but also the current state of the economy as we anticipate further volatile conditions and even threat of a recession. 

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. Nearly 80% of those ages 65 and older own their homes, according to the Joint Center for Housing Studies of Harvard University. However, a lot of pre-retirees fail to look beyond their monthly mortgage payment when estimating their long-term housing costs.

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 $1,000,000, you should expect to pay an average of $10,000 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. Especially with inflation and the bear market we’re currently facing.

By ensuring you have an emergency budget aside, you’ll decrease the probability of tapping into your retirement savings.

2. Healthcare

Even with Medicare, it’s no secret that health care can cost you a pretty penny in retirement.

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.  

Original Medicare comprises Part A, which covers hospital stays, and Part B, which covers doctor visits. Many other expenses and services you might assume were routine—such as dental, hearing, and vision care, as well as copays and prescription drugs—are covered only through supplemental plans, which cost extra.

For more complete coverage, you may need multiple plans. For example, you can sign up for Medicare’s stand-alone prescription drug program, known as Part D, as well as purchase a private Medigap policy to help cover deductibles, coinsurance, and copays. You could also add private insurance to cover routine dental, hearing, and vision care.

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. Long-Term Care

The U.S. Department of Health and Human Services estimates that close to 70% of today’s 65- year-olds will require some kind of long-term care for an average of about three years, and the costs are high and rising.

For example, the national average cost for an in-home health aide in 2021 was $61,776, whereas a private room in a nursing home facility was $108,405.

Being proactive by educating yourself early about potential care options and funding sources can make it easier to put a solid plan in place. A major benefit to planning early is the ability to make important decisions when you’re calm and healthy, and before a health crisis hits. The first step you should take is to make sure you have an estate plan in place that includes a will, trustee and designated power of attorney for your healthcare and financial decisions. A power of attorney can ensure that medical decisions are made and bills get paid if you’re unable to do so.

As you approach retirement, you may want to consider a long-term care insurance policy to help cover expenses related to at-home care, assisted living or nursing facilities. In addition to a long-term care policy, you can also use these sources to help pay for expenses:

  • VA benefits
  • Medicare or Medicaid (note that Medicare covers skilled services like rehabilitative and nursing home care, but does not cover assistance with daily living, which can make up a majority of long-term care needs)
  • Life insurance
  • Disability insurance
  • Trusts
  • Additional options like retirement accounts, pensions, real estate, savings and Social Security income

5. 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 $260 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 with CKS Summit Group. Set up your complimentary strategy session with us here today.

Retirement Income Planning with CKS Summit Group

Celebrating 23 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.