Unexpected Retirement Expenses

Planning for the unexpected can be difficult but not impossible. When it comes to preparing for retirement its critical to try and forecast as much as possible. That said, there are common unexpected retirement expenses… in other words, folks are caught off guard by the same things.

This article will go over a list of items that many people forget they will have to pay for during retirement. Some may seem obvious to you, but my research shows that many people forget to plan for at least some of these.

Major Home Repairs

During your working years it was likely that you did not spend a significant number of years living in the same home.  In fact, according to the US Census Bureau, only 37 percent of households have lived in their house longer than 10 years.

During retirement, you will probably find yourself a bit less willing to move. Major home repairs that you may not have been accustomed to performing due to spending less time in a single location may begin to change.

The 10–15 year life expectancy for an HVAC system may come in to play during retirement. The end of your 30-year roof or even foundation issues may find its way into your retirement budget.

Below is a list of major home repairs and the typical cost. If you would like more information about these specific type of repairs check out this article from Zillow.

• • Foundation Repair: $10,000 +
  • Roof Repair: $5,000 +
  • Termites / Pests: up to $8,000
  • HVAC: $2,000 – $10,000

The Loss of a Spouse

The thought of losing a spouse is something that no one wants to think about. The result of this mindset is that it can lead to a big gap in planning for substantial expenses.

The loss of a spouse can have its direct costs such as final medical care, funeral, and burial costs, but can also exact a mental toll that may lead to further financial hardship.

Hearing Aids

Most folks don’t realize that hearing aids and hearing aid fitting is not covered by Medicare or other major insurances. Not having a hearing aid when you need one is not a way to go through life. Besides the basic quality of life issues, it can also be unsafe. What if a spouse or your grandkids call for help and you can’t hear them?

Hearing aids are expensive as well. At time of publication, they can range between $1,000 and $6,000 each. Given that age related hearing issues will likely result in needing two hearing aids at a time, this can be a very expensive unexpected ‘feature’ of retirement

One thing to note, however, is that hearing aids are typically tax deductible… a small but measurable benefit.

Dental Work

Dental issues can always be expensive and sudden, but in retirement the consequences of needing major work done can negatively affect your budget.

Take dentures for example. When I was a child in Kentucky, there was a rumor that the number one export of the state was illicit dentures. I thought it was a joke but now that I know the true cost of dentures, I’m not so sure. Without insurance, dentures can run between $2,000 and $20,000!

Taxes

In modern times, the corporate pension has gone the way of the dodo. 401(k) plans have largely replaced them. Traditional 401(k)s (and Traditional IRAs) specifically were not taxed when contributions were made… this means taxes will be owed upon withdrawal.

This means you will be paying income tax in retirement despite no longer working. You can avoid income taxes on accounts that were designated ROTH accounts at the time of contribution, but you will need to plan to pay taxes on them otherwise.

Adult Children

Kids are expensive. According to research funded by the USDA, the average cost of raising a child through the age of 17 is over $230,000. But for many folks, the outflows don’t stop at 17. During both the 2008 financial crisis and the pandemic of 2020, millions of adults moved back in with their parents.

This type of expenditure can be unknown and largely dependent on specific situations. Suffice it to say however, that we all love our children and usually there is some level of financial support we are willing to give to our children if they should suffer a hardship.

Inflation

Although largely absent from the collective psyche for multiple generations, inflation is starting to make a comeback. Even if it dissipates in the short term, it could always rear its ugly head in the future.

Inflation cuts at your purchasing power directly. Although your income may come in steady chunks year after year based on whatever financial plan you have decided, inflation will come seemingly randomly and changes from month to month, and year by year.

In 2021, inflation as measured by the Consumer Price Index (CPI) clocked in at 5.4%. That means, on average, everything you will be spending is 5.4% more expensive this year when compared to last year. If your income didn’t rise as much as 5.4% then you are taking a pay cut.

To make matters worse, inflation compounds over time. If you are in retirement for 30 years, then inflation can drastically cut your effective buying power later in life.

Using this handy inflation calculator at Nerd Wallet, I was able to determine that if you had $100 in 1991, 30 years later you would only be able to buy about $50.69 worth of goods. All courtesy of inflation. Long story short, if the past is any indicator of how inflation may affect the next 30 years, then you can expect your buying power to be cut in half.

Cuts in Social Security

As a participating member of the of economy during your working years you likely paid into Social Security and have or will subsequently earn the right to be paid a small sum monthly upon reaching retirement age.

In 2010, the Social Security Administration predicted that the Social Security Fund would be solvent all the way through to the year 2037 (see this bulletin for proof). This is no longer the case. According to an article by NPR, that year had dropped to 2035 as of 2020. Due to the pandemic, it has dropped even further to an insolvency date somewhere in the year 2034.

What does this mean? It means that benefits will not be fully paid out in 2034. The government will only be able to pay out what current working individuals are paying in. As of writing, that would only be 78% of the full benefit owed.

If you plan on using Social Security during retirement, then as of now you can expect to take quite the haircut.

In fact, its likely that the year that the Fund becomes insolvent will come even sooner. Or, the full age of retirement, currently the age of 70 for those born in 1960 or later, will be forced to increase to help alleviate the financial burden.

Chronic Long-Term Care

According to the Administration for Community Living, 70% of all retirees who make it to the age of 65 will need some form of long-term care. 20% will need that care longer than a period of 5 years. This includes nursing homes and in-home care such as assisted living.

Without Long-Term Care Insurance (which you should consider getting), the costs for chronic care can be anywhere from $20,000 to $100,000 per person. Doing the simple math, that could be up to $200,000 per year.

Those numbers get uglier every year… consider that medical costs have been increasing more than inflation leading to particularly unpredictable expenses.

Preparing now for long-term care includes getting a robust insurance policy and ear-marking a significant sum towards it now. This expense, if not planned for, can be one of the most burdensome for retirees and at a time when they certainly cannot reenter the workforce to amend their finances.

Living Longer than Expected

According to the US Census Bureau, from 1960 to 2015 the life expectancy for an average person in the US has increased almost 10 years.

Whatever your life expectancy is today, with medical advancements, it will probably be higher next year and the year after. You will probably (hopefully) live longer than you are currently expecting. Drawing down your nest egg needs to reflect this possibility.

A rule of thumb heralded by many personal finance experts is to limit your annual withdrawal of your retirement accounts to only 4% of the principal. This is known as the 4% rule. Although this guidance was based on a 30-year retirement, it is still likely to hold for those of us that make it through to a longer period.

Divorce

No one plans on a divorce. That is precisely what can make it so expensive. As a couple, you likely enjoy certain benefits from combining your finances. You likely share a house, perhaps share a car, and gain other benefits such as through taxes and medical assistance.

A divorce always wrecks the finances of those involved, but having it happen while in retirement might send you straight back to the workforce. Some statistics show that divorce rates in retirement have been increasing and may be above 25%.

Take care of your marriage. Take care of your spouse. Take care of yourself. Ending a relationship is never easy, but hopefully now is the time to invest in the relationship tools you need to enable a healthy marriage before it’s too late.

Fraud

Retirees are among the most targeted when it comes to scammers and outright thieves. Likely, if you have retired, you have two things that make you vulnerable: old age and money. There are plenty of people that would love to take advantage of both.

Being completely honest here, the older we get the less alert or mentally sharp we may become. We are less keen to new technologies and ways that nefarious individuals may try to gain an edge on our decision-making.

With a nest egg in tow, we may find that people are willing to tell us things or do things that may set us back financially… sometimes catastrophically.

There are services out there such as LifeLock (I have not used the service) that can help address identity fraud. Your Financial Advisor can also be used to help screen for possible malign activities.

Emergency Funds

Having a stout emergency fund is about the only way to help smooth out some of these unpredictable expenses you may encounter while retired. Your retirement accounts should not be considered sufficient back-stop.

Having an emergency fund that is 6 to 12 months of your expenses easily accessible in an FDIC insured savings account is a must. The money must be quickly accessible and only touched only during a true financial emergency.

During decades in retirement, you will likely tap your emergency fund more than once. That’s okay. Just make sure to put a line item in your retirement budget to replenish the funds over time. Even during retirement, there is a need to continuously save to make sure you can meet future unexpected financial obligations.

Final Thoughts

The unexpected expenses you may find yourself opening your wallet for during your golden years can run the gamut of your imagination. Plan for what you reasonably can, and for what you can’t plan for: set aside enough for an emergency fund.

Enjoying your retirement shouldn’t include being stressed by life’s occasional valley’s… doing the prep work now will set you up for future success.

All that said, I hope you enjoyed this article!

If you have any other unexpected expenses that you can think of, drop them in the comments below and I can see about adding them to the list for others to consider.

Financial Advice

I write this blog for fun, and its contents should not be considered financial advice.

If you are looking for advice, then you should do your own research and / or hire a financial professional such as a Financial Advisor or an accountant. What you do with your money in retirement can have a major impact on your quality of life… spending the time or money to protect what you have earned is a reasonable expectation.