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Gastos Inesperados que pueden destruir tu jubilación
Gastos inesperados que pueden destruir tu jubilación
25 de August de 2023
Social Security and Divorce
Everything you need to know about Social Security and divorce
15 de September de 2023

Unexpected expenses that can destroy your retirement


Some financial experts point out that retirement is the most prolonged vacation we will ever have.

Still, while that is true when you are working and have a continuous source of income, when your vacation is over, you will return to your job, and the payment follows.

But we all know that in most retirement cases, many people have already stopped working, and not everyone has another source of income. However, several studies show that 1 in 6 Americans will continue working when they retire.

We can certainly affirm that one of the worst times to have unexpected expenses is while you are retired, but we also know that things happen, and practically everything has a financial impact.

This blog presents research on the four unexpected expenses that retirees commonly face in order to help you prepare for them:

1.- Home Repairs while you are retired

When people over 50 are asked, Do you want to stay in your current home, or would you move to a smaller one with lower maintenance costs instead? 75% of respondents say they want to remain in their existing homes.

Hence, it is no secret that according to a study by the Society of Actuaries, home repairs are the number one expense for financial surprises.

Many retirees deal with situations as they come and do not prepare in advance. However, it’s essential to maintain a positive mindset and acknowledge that unexpected events may occur.

Therefore, some specialists point out that the annual housing expenses for repairs are equivalent to 1% of the value of your home. So it is time to ask yourself, am I financially able to spend that 1% every year?

If the answer is no, looking for a smaller home with lower maintenance costs makes perfect sense. Thinking that you will let the years go by without doing maintenance will mean that you will pay much more.

Furthermore, the Society of Actuaries study confirms that there will be one emergency and several, which could trigger a financial storm.

Lower-income groups usually have the greatest financial shock; in some cases, these retirees may experience more than four unexpected retirement spending situations simultaneously.

We can understand that moving to a smaller or lower-value house is not exactly what you were expecting, so we suggest that you start to build a good emergency fund that will allow you to meet these maintenance expenses.

Remember the expense is very likely to come, even if you are the most positive person, It is much better if you can distribute it monthly and save little by little than if it takes you by surprise and at that moment you have to:

  • You were selling part of your investment portfolio at a value that did not suit you because perhaps the market went down.
  • Or the money may have to come out of one of your traditional 401K or IRA accounts, and you may have to pay more taxes that year than you had planned.

2.- Uncovered health care expenses during retirement

Undoubtedly, being able to apply for Medicare is a great advantage, but thinking that you are 100% covered and will not have to worry about healthcare expenses during your golden years is not the most appropriate thing to do.

According to a Fidelity study reviewed on CNBC, on average, those over 65 will spend an average of $280,000 on healthcare expenses for their remaining life span.

But how is it possible that this amount can be so high? It is essential to know or remember that certain expenses are not covered by Medicare, such as:

  • Most dental expenses
  • Eye examinations and prescriptions for eyeglasses
  • Hearing aid.
  • Medical expenses during trips outside the country, among others.

According to the Society of Actuaries study, dental emergencies are retirees’ second largest unexpected expense.

This expense item is very complex because some retirees who have additional insurance to cover this type of situation report that sometimes some essential expenses are not covered.

Experts in the area point out that looking for various options and prices in dental care is vital, remembering that cheap can be expensive.

Therefore, in deciding which coverages to apply in Medicare, you must analyze well; knowing that you have options A and B is not enough; you must do more research.

Option D for drugs and Option C for Medicare Advantage are good to know, as is consulting with an insurance specialist to determine what is right for you, capable, and best for you to select Medigap.

In this case, our suggestion before retiring is to use Health Saving Accounts, which have three three superpowers:

  1. Contributions given are deducted from your income.

2. Your return is growing without paying taxes.

3. When making withdrawals for health care payments, you will not pay taxes either.

3.- Extended Term Care in Retirement

This is another one of those expenses that people feel can happen to everyone but them, but according to statistics from Longtermcare.gov, they show the following:

  • 70% of people over 65 will need long-term care.
  • The average time of this care can be 3.7 years for women and 2.2 years for men.

One of the most common mistakes made when planning for these types of expenses is thinking that Medicare will cover them:

However, it is essential to know that Medicare covers long-term care under certain conditions and for periods that are usually not as long as you may need.

Suppose you would like to know what amount we are talking about for Long Term Care expenses. In that case, it will all depend on whether you will be at home if you need a particular type of nurse with special qualifications or if you are going to a special place.

In addition, it could be anywhere from $50,000 to $130,000 per year, depending on Genworth, which tells us that if we are talking about a total of 3 years, this amount could total $150,000 or $390,000.

Many know their solution will be to lean on their family or partner. Still, it is also necessary to calculate what these opportunity costs represent for that other person, not only emotionally but also because they will not be able to go to work.

In this case, there are Long Term Care policy options that are always good to discuss with a specialist; but just as importantly, remember the words of Warren Buffett: “Don’t ask the barber or hairdresser if you need a haircut.”

What we mean by this is always look at several options and study what may be the best for you and rely on financial advisors who are fiduciaries and look for what is best for you.

4.- Inflation in Retirement

Selecting the fourth option was highly complex because many unforeseen expenses can occur, such as a child or family member needing financial support or perhaps losing your partner.

However, one of the most dangerous factors for a retiree is undoubtedly inflation since it gradually destroys their income base and does so cumulatively.

For example, while it is true that inflation has been dropping from its post-pandemic levels at the time of writing this article, it is no less accurate that, as economists say, prices are going up the elevator while salaries are going up the stairs.

Therefore, the Social Security check is adjusted each year based on the COLA (Cost of Living Adjustment); when applied, the retiree has already been paying for products and services at a much higher price for a long time.

Alonso Rodríguez Segarra
Alonso Rodríguez Segarra
Founder & CEO Advise Financial advise-financial.com Alonso Rodriguez Segarra is a “CERTIFIED FINANCIAL PLANNER™” named by Investopedia among the Top 100 Financial Advisors in the USA  with more than 20 years of experience. His specialty is helping those people who want to plan for their retirement or optimize their retirement, with Hourly Financial Planning always looking for the best for his clients, under fiduciary criteria.

1 Comment

  1. Great web site. Lots of useful information here. I am sending it to several friends ans also sharing in delicious. And certainly, thanks for your effort!

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