October 25, 2011 — Let’s hope you are one of those who have prepared well for the financial aspects of retirement. If so, congratulations! But before you start taking too many high fives with your friends or significant other, we suggest you look at some of the expenses that many folks are not prepared for. If you are vulnerable to one of these, take some action now to prepare against it.
If you aren’t concerned about unexpected costs, consider this sobering estimate from the non-profit Employee Benefit Research Institute, which EBRI figures that it will cost $287,000 for a couple to have a 90% chance of covering their medical costs in retirement, assuming that their prescription drug costs are about average.
Long Term Care — Unless you spend all of your assets and have no other recourse, Medicare is not going to cover your long term care expenses (although there are some expenses within that might be covered). Whether you are cared for in your home, in an assisted living facility, or in a nursing home, these expenses can be significant and far higher than your expected social security benefit. Typical assisted living fees are less than in a nursing home or in a Continuing Care Retirement Community (CCRC – which tend to be more luxurious). Figure at least $2400/month for assisted living, with extra costs if more than basic care is needed. Costs vary by state. Charges at CCRCs can easily go to $7,000 or more per month, depending on services provided. If you or your significant other have unusual medical conditions such as Alzheimers or dementia those fees can be much higher. Figuring that if you spend 10 years in an assisted living facility at $2400 a month, that is $288,000. Even if you are cared for in your home by a part-time health care aide at $15/hour, that can add up. Long term care insurance can a good protection against this expense. Investigate carefully before you buy, however, because plans differ greatly. Many, for example, will only cover you for treatment in your home – not much help if you have to go to a nursing home.
Un-reimbursed Medical Expenses – One expense you will face at age 65 is your Part B premium, which will undoubtedly be more than $110/month once the 2012 premiums have been established. Then there are costs for your prescription drug plans, as well as drugs that might not be covered at all. Add onto that your supplemental insurance and/or any unreimbursed or out of system coverages you might incur. And then don’t forget your dental and optical expenses, most of which will probably be out of pocket. All of these can end up being a lot of money – far more than most people ever expect.
Travel – Sure you always planned on taking that long-postponed trip to Europe or China. But beyond ones like those you might have some unexpected travel expenses. Such as what might happen if you end up with children and/or grandchildren who live far away. Or if an elderly parent in a far away place needs frequent visits.
Expenses for Loved Ones – The unfortunate part of today’s economy is that many adult children have lost their jobs or had to settle for a lesser one. If one of the families in your inner circle falls on hard times, it might have to be you who pitches in, or they might even come to live with you. You might be their children’s college scholarship source. And if you have elderly parents who require an expensive assisted living facility and their resources can’t handle it – you could have a major expense on your hands.
Major home expenses – If you decide to stick it out in your family home, it, like you, isn’t getting any younger. Roofs and boilers fail, siding needs to be painted, appliances bite the dust, septic systems have to be rebuilt, and driveways repaved. These expenses tend to be major, and they often cannot be avoided. All of these are good reasons to move to a low-maintenance home or community and let someone else worry about it.
On the expense side of the equation you might experience some unwelcome revenue surprises. CD’s that used to earn 4% now bring in .5%, stocks that traded at $100 are now at $50. If you have a 401(k) plan you will have to start paying taxes on the distributions you must start taking in the year you reach age 70.5 (April 1 of the year after that if you are still working). The bottom line is that if you haven’t revised the income projections from your investments lately, it might be time to give them a haircut.
For further reference:
My Wife is Getting Worred – Will We Have Enough Money in Retirement?
What Unexpected Expenses Have You Had? Please share your experiences in the Comments section below – your input is always the most helpful.