Retirement Planning

Financial Surprises in Retirement

Published by Bob Gustafson

Financial Surprises in Retirement

Even with the most careful and forward-thinking retirement planning, there are still some financial surprises you may face. Those extra costs and financial drains can make quite a dent into your portfolio, as well as in your everyday savings and money on-hand, potentially setting you back a few steps in your smart retirement preparations. The tricky thing about financial surprises in retirement years is that it’s not possible to quantify them now, since so many of them are complete unknowns such as what healthcare will cost in 5, 10, 20 or more years, your longevity, financial assistance to children, inflation, among other things.

But here’s the good news: you can better plan for them now by just knowing they’ll be out there.

Whenever you talk to people who are in their retirement years – say, a grandparent, friend or neighbor – they’ll very likely tell you that they didn’t expect costs of living to increase this much in such a short amount of time, and they didn’t see some big expenses coming. So to help you avoid this kind of ‘wish I had planned for this’ scenario, let’s take a look at the top surprises you may face during your retirement years:

1. Inflation

Overwhelmingly, people can’t believe what things cost today, from a gallon of milk to clothing to groceries and gifts for their loved ones. We’re not just talking about big time spans here, such as ‘In my day – 30 years ago – a gallon of milk cost $x.’ The time frame of difference is surprisingly shorter. A gallon of milk and a week’s worth of groceries can cost a lot more than it did just 5 or 6 years ago. So inflation will make a big dent in your budget more and more as the years go on.

We’ve been lucky for the past few years, yes, in that inflation has mostly held steady. But none of us know what inflation is going to do, if it’s going to soar, in the coming years. It’s surprising what inflation can do, and that kind of surprise is one that can pack a wallop.

2. Healthcare costs

We all know that we’re going to need a mighty store of money for our basic healthcare costs and for any catastrophic illnesses or injuries in the future – for ourselves and for our relatives. In your retirement years, you may also find yourself paying for your kids’ and for your parents’ medical needs. The average couple will spend $280,000 for their own medical costs in their retirement years, and if they find themselves responsible for others’ health and survival, that’s quite a massive surprise and drain on their budget.

There, of course, is no set amount for what will be needed in the realm of healthcare costs looking forward. It’s always going to be a moving target, since – as we’ve seen – we have no idea what kinds of programs will be in force during our retirement years. Think the evolution of Obamacare and the Affordable Care Act. Think about what may become of Medicare and Medicaid. It’s an unknown and cause to prepare now for more than you think you’ll need.

3. Taxes

If you have $1 million in your IRA, it’s going to be $750,000 after taxes. If you’re among those who look only at the totals in your IRAs, feeling confident (and somewhat complacent) about having that much money in your accounts, watch out for the big, big, big surprise coming when taxes take a big chunk out of your retirement accounts. Spouses and surviving children also have to prepare for those big checks written to the IRS, and you’ll want to be sure they’re provided for after the tax man cometh.

4. Upkeep on your home and property

Here’s another one that’s impossible to predict, and which can create big surprises and big hits to your budget. A roof on your house will have to be replaced every fifteen years or so, so if you’re 65 years old, you can expect that you’ll have to replace your roof at least once in your lifetime. If you’re 50, you may be looking at 2 roof replacements and perhaps some repairs. You likely didn’t think about your roof when you were in your 30s and 40s, preparing for what you’d need in your retirement. Add in the need for energy-efficient windows, basement flooding and other pricey upkeep issues, and costs related to your home can skyrocket.

What about your automobile? Even if your car is paid off, you will find yourself paying for car repairs or replacement throughout the years. Many people forget that they may need to purchase a new car and they haven’t budgeted these costs into their monthly spend.

5. Monthly expenses beyond what you already know

Your household budget may have a good estimate for your groceries, utility bills, entertainment such as streaming services and other categories you know as your monthly expenses. But things change and you may have expenses outside of what you had planned for. These surprises that you’re not used to in your monthly bill spreadsheet can sneak up on you and cause your budget to be a somewhat short.

6. Financial demands of your aggregate family

They may be adults, but your kids may still find themselves in need of your help. They might be facing divorce or help with their home costs, not to mention the ever-escalating costs of college. Many more grandparents in this generation are pitching in to help get the grandchildren through college.

Expect the unexpected

Even though you can’t guess the exact amount you’ll need to handle these surprise expenses, you can build a good cushion into your retirement funds for the unexpected. Some strategies could be to save more before you retire, cut spending a little without compromising your lifestyle or go back (or continue) to work. This will allow you to ensure that you have built a really good cushion so that you have more than you need, peace of mind, the ability to keep enjoying your lifestyle and the chance to say, “I planned well for that.”

As an added bonus, your kids will learn from you to do the same careful retirement planning, so that they too can handle whatever life may throw at them.

Get more details in our podcast recording below. And contact us with questions on how you can reduce financial surprises when you get to retirement. For more information, listen to our podcast: