These Expenses Hit Retirees Hard

13 Dec

Retirement Couple Enjoying Life!

Retirement budgeting can be a challenge and according to a recent survey unexpected expenses can really throw a wrench into the works. The survey, done by the Society of Actuaries, found that roughly have of retirees in their mid 70’s could not cover an unplanned expense of $10,000.

Baby boomers are also having a difficult time with 41 percent of older boomers being unable to cover the expense and 45 percent of younger boomers came up short. The biggest issue the report found was that while people tend to plan for things they regularly spend money on, they forget about the unexpected, periodic expenses that crop up from time to time.

Home Repairs and Dental Work Are a Problem

Most retirees have budgeted enough money to cover all of their known expenses such as a mortgage, utilities, transportation, food and other life necessities, as well as a bit of money for fun.

Where they tend to fall down is when an unexpected expense crops up. According to the Society of Actuaries research, the two biggest financial shocks for retirees turned out to be expensive dental work and home repairs. Twenty-eight percent of those surveyed had experienced major home repairs while 24 percent had major dental expenses to deal with in retirement. Heavy spending on prescription drugs came in number three when it comes to unexpected expenses.

In addition to these unexpected costs, general healthcare expenses are often underestimated by retirees. According to a financial literacy quiz on Financial Engines, roughly 58 percent of respondents over the age of 65 and 76 percent of those aged 55 to 64 believed that a typical couple retiring today at the age of 65 would need between $50,000 and $200,000 for health care.

Unfortunately, the true cost, according to an estimate by Fidelity, is about $280,000. This means that most people were off on their estimate by at least $80,000 (that’s a lot of cash to find laying around) and for those who guessed $50,000 they will need to come up with $230,000 extra.

Medical and repair expenses often fall to retirees because they are not covered by insurance. Homeowners insurance doesn’t cover home repairs unless they were caused by a covered peril and the damage was sudden and unexpected, such as hurricane or fire damage. A furnace or air conditioning system that has reached the end of its useful life is never covered by insurance, leaving retirees to cover this very expensive repair.

The same can be said for dental work. Health insurance rarely covers dental work and even if it does, there are usually pretty low annual coverage caps. Dental implants, which can be a common issue amongst the retired set often run at least $4,000 each which can be a huge financial shock if this type of expense was not in the budget.

What Can I Do?

Here are a few tips on how to keep your financial house in order during retirement:

  • Budget For The Unexpected:Most financial advisors recommend that retirees keep three to six months worth of living expenses in a liquid account to help cover unforeseen expenses. This type of backup can be a financial lifesaver for retirees when unforeseen expenses come up. This can help prevent having to sell off stocks or other assets or even worse, putting the expense on a credit card and having to pay interest while you pay off the debt.
  • Pay Off Your Mortgage: If possible, pay off your mortgage before retirement. In most cases, your home is your biggest asset and if it is paid off and remodeled (if necessary) before you retire it allows you to age in your home. It also means you will have to draw less money from your retirement accounts and can be a source of income through a reverse mortgage as you get older.
  • Consider Dental Insurance: If you are concerned about dental issues, consider dental insurance. Be aware that these policies often come with coverage caps and may exclude certain procedures. Always read the fine print before signing anything and ask questions about anything you don’t understand.

Cut Back on Expenses: Look over your monthly expense and cut anything you no longer use. Consider dumping magazine subscriptions, gym memberships or other monthly services you no longer need or use.

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