Managing Stealth Retirement Expenses
Take a look at some of the potential financial surprises in retirement - and how you can prepare for them.
In 2017, the Society of Actuaries put together a survey of retirees, reporting unforeseen expenses that had hit them in retirement.
Nineteen percent of retirees said they experienced four or more financial surprises. Twenty-four percent of retired widows said that they had also been through these downfalls. The top unexpected expenses included:
- Major home repairs or upgrades -28%
- Major dental expenses - 24%
- Significant out-of-pocket medical prescription bills - 20%
- Drop in value of the home of 25% or more - 16%
- Illness or disability - 15%
- Running out of assets - 15%
- Sudden loss in the total value of savings of 25% or more - 14%
- Going on Medicaid - 14%
- Family emergency - 9%
- Sudden loss in the total value of savings of 10% or more - 9%
While these generally happen with low frequency, shocks like long-term care, longer-term support of adult children, and divorce were the most troublesome from which to rebound. Having an adequate emergency fund will always help. Those with strategies in place for healthcare, including Medicare supplemental insurance, tended to reduce their overall health spending. They also tended to be in better fiscal health than those without.
When a retiree is considering potential long-term care support or disability, a possible solution is to buy a life insurance policy with accelerated benefit riders. Proceeds are paid out in the event of a disabling situation. Retirees may still access the cash value in some policies to pay for other expenses, and loved ones will also get the death benefit after they pass away.
Medicare is a great health benefit but does not cover 100% of health costs. Investigating the costs of Medicare Parts B and D coverages coupled with a supplemental plan might make sense, although the premiums for these policies could be high. History has shown that persons with these coverages were better able to cover their medical bills fairly well as opposed to not.
Overall, retirees have been surprisingly resilient when it comes to unexpected adverse financial circumstances. Three in four experiencing major financial shocks have been able to adjust to their new circumstances. However, consulting with your financial advisor for how you can prepare for potential major financial shocks can help lessen unwanted surprises.
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