Unexpected Retirement Costs: How to Best Prepare

Chris Maurer |

Retirement can be an exciting time of life, and for many people, a time of good fortune. On the other hand, retirement may also come with some unexpected costs. Fortunately, with some forethought and planning, you can prepare for many of these unanticipated pitfalls and keep your retirement financially secure and enjoyable. 

Let's discuss 4 common retirement costs that may be unexpected, and what you can do to prepare for them.

1. Healthcare Costs

These costs may be unexpected in terms of timing; however, they are often unavoidable as you grow older. Many retirees assume that government programs like Medicare will pay for the bulk of any healthcare expenses they accrue. The truth is, there are definite limits on what Medicare will pay. For example, Medicare doesn't provide coverage for most forms of dental care, including dentures, tooth extractions, fillings, etc.

One of the best ways to prepare for unexpected healthcare costs in retirement is simply to educate yourself on which treatments/procedures Medicare and other government-sponsored programs cover — and which ones they don't. In addition, many retirees have found that health savings accounts (HSAs) are a great way to set aside tax-deductible money for any unanticipated expenses. At the very least, it may be a good idea to save a little extra each month in case of a health emergency.

2. Providing for Family

We live in the era of "boomerang children" — that is, grown children that leave home for a time only to return for shelter and financial assistance. Moreover, many adult children never leave home at all. According to the U.S. Bureau of Labor Statistics, the percentage of adults aged 25 to 34 who still live with their parents reached 16.8% in 2019. As you can imagine, providing for adult children often comes with heavy financial costs, especially if they are currently unemployed.

On the other hand, many retirees must care for their aging parents. If they aren't in a position to care for them at home, they may need to hire in-home aides to care for them or pay for their residence in an assisted living facility. Of course, even those who can support their parents at home must spend time and resources on their care. 

While retirees and those near retirement age should remain loyal to their adult children, it's important to set clear expectations as to how long financial support will be provided — and when it will stop. In addition, it's the course of wisdom to have a family meeting with your aging parents, and any siblings, in order to determine who the primary caregiver will be, and how care will be provided should it become necessary. You may want to have your parents sign a durable power of attorney; if they are agreeable to the idea, then this document will allow you to manage their assets in the event of incapacity.

3. Property & Vehicle Maintenance

These are generally unexpected costs that everyone has to deal with, including retirees and those near retirement age. While these costs are usually not the largest expenses associated with retirement, they can add an extra layer of stress to your finances — and your life. For example, if your car unexpectedly breaks down then you could be looking at an unforeseen repair bill in excess of $1,000.

Some retirees are tempted to tap into their retirement fund in order to pay off high maintenance/repair bills. However, this may not be the best way to cover such expenses, especially since there may be an extra tax penalty associated with early withdrawals from your 401k or another retirement account. In many cases, it is more advantageous to have a line of credit ready and pay off your bills over a period of several months. 

4. Divorce and Death

This is perhaps the most painful unexpected event that can occur after retirement. However, research indicates that in the 15 years from 1990 to 2015, the divorce rate for Americans aged 50+ skyrocketed by 109%. Of course, a divorce inevitably brings with it financial costs, such as the division of property, cash assets, stocks, bonds, etc.

The best way to prepare for such an unexpected event (other than maintaining a good relationship with your spouse) is to educate yourself on your household finances, both personally and as a couple. That way, whether divorce or death unexpectedly occurs, you'll be in a better position.

If you'd like to learn more about how to make your retirement financially secure, reach out to Park Place Financial today for a complimentary financial checkup. Our retirement planning experts would be happy to assist you.