5 Expenses That Catch Retirees By Surprise
Surprise expenses are no fun for anyone, especially retirees living on a fixed budget. Five Pathways Financial director and retirement counselor, Nate Towers, CRPC® (Chartered Retirement Planning Counselor), was featured September 16, 2024 by GoBanking, Yahoo News, AOL, and Nasdaq in an article called, “5 Expenses That Catch Retirees By Surprise — And How To Prepare for Them.”
Nate had a lot to say about this subject, because what he and his team does is retirement planning, which includes budgeting and planning for the unexpected. In fact, millions of Americans facing retirement feel unsure and overwhelmed about how they will live on the money they’ve saved up, or if they have saved enough.
Don’t let these five expenses upend your finances in retirement—now is the time to prepare!
1) Home Repairs and Maintenance
Surprise, the air conditioning might go out, or the roof might start leaking. Having a home maintenance fund is critical. Or you might possibly decide to downsize to a home that requires less work and maintenance on your part. It all depends on your personal goals and desires, which is where you should always start when you begin to plan for retirement.
2) The Financial Needs of Adult Children
This one hits close to home for Nate Towers: when grown kids or other family members need money or financial support — and the guilt-laden obligation to provide for them.
“My parents, who have been married for almost 47 years, met in October, got engaged in November, married in February, and had a baby nine months later in November,” Nate says. “Ever since then, they’ve only had about six months total without someone else living in their home.
“Whether it was adult children needing a temporary place to stay between homes or for other financial reasons, or my mom’s sister, who is single, aging alone and doesn’t have an effective retirement plan, living with them.”
This sort of situation can really stress your finances in retirement.
“The reality is retirees feel obligated to help family members, which can strain retirement savings. One of the best things you can do is set clear boundaries and communicate your financial limitations with family members. A lot of people think retirees have a lot of money, but that’s not necessarily the case, so being upfront about this is key,” Nate says.
3) Travel and Entertainment
Another cost that may be underestimated is the cost of travel and entertainment in retirement.
“Many retirees underestimate how much time they’ll spend on leisure activities, especially early in retirement when they want to travel,” Towers says. “It’s important to set a realistic budget for travel and hobbies and possibly consider cutting back on discretionary expenses if travel becomes a priority — kind of like those Costco trips where you pick up something you didn’t really need.”
4) Inflation
Your retirement plan and portfolio should contain hedges against inflation, or you might find yourself in financial trouble down the road.
“While you’re working, you don’t feel the effects of inflation as much because you typically have a rising income over the course of your career,” Towers says. “But in retirement, when you may have a fixed income, inflation can be felt over the course of three, five or 10 years.”
To protect yourself from the devastating impacts of inflation, your plan should create a foundational source of income that you won’t outlive.
“This could be Social Security, a pension from work or possibly setting up a private pension using a fixed indexed annuity with an income rider,” Towers says. “Additionally, invest in a diversified portfolio that includes assets that tend to outpace inflation, such as stocks or TIPS (Treasury Inflation-Protected Securities). These aren’t foolproof, but they can give you an upper hand in dealing with this unexpected or underappreciated event in retirement.”
5) Long-Term Care
Finally, don’t ignore the likelihood of needing long-term care, or help with daily living activities, that Medicare does not cover.
“This is one of those areas that’s kind of like talking to someone about healthcare in the future,” Towers says. “It’s like asking someone in July, ‘What are you going to do if you get a cold in December?’ Most people respond with, ‘I’ll figure it out at the time; I don’t need a plan right now.'”
There are new long term care policy options that you should consider.
“I’m not a huge fan of traditional long-term care products, but there are hybrid products out there where you can allocate assets to help cover care or utilize life insurance for long-term care purposes,” Towers said. “Regardless, having a plan is very important.
“Some people say, ‘Well, I have kids; they’ll take care of me.’ But the reality is that’s not a great long-term plan, because those kids will be aging, too, and the last thing most people want is to become a burden to their children. So again, take some time to think about these unexpected events and find a solution — a strategic plan that can help address these concerns.”
Five Pathways Financial focuses on retirement planning. Please reach out to us to discuss your plan by setting up a complimentary conversation here.
Read the original articles online:
https://finance.yahoo.com/news/5-expenses-catch-retirees-surprise-120210325.html
https://www.aol.com/5-expenses-catch-retirees-surprise-120210960.html
https://www.nasdaq.com/articles/5-expenses-catch-retirees-surprise-and-how-prepare-them
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