Unexpected Retirement Expenses
Many people look forward to retirement as the finish line in life. In reality, it is the start of a new journey, one with unexpected expenses that can set you back, with little room to recover. With life expectancy increasing, retirement can last 20 to 40 years!
Here are the most-common expenses in retirement that can significantly reduce your nest egg and what to do about them:
* Medical expenses and long-term care (LTC). One out of four significant expenses in retirement is unanticipated medical expenses. For many people, long-term care costs come suddenly and unexpectedly. Whether you need temporary or permanent help, costs can be significant. Look into a LTC insurance policy and start saving early to anticipate possible medical expenses. Living a healthier lifestyle now can drastically lower health issues in retirement. Visit artofthinkingsmart.com for more information on LTC.
* Children or other family need assistance. Many young people are still out of work or have low-paying jobs insufficient to meet their needs. They may need to move back home or require financial assistance. Also, with advances in medicine, parents may live longer, and if they don’t have a large enough nest egg, they, too, may require help. In some cases, you may have to care for grandchildren, playing a role as a parent again. Assist family members now with their financial plans, especially your parents, if they do not have one. Empowering family members to properly manage their finances is the best way to help them over the long term.
* Traveling. Visiting new and fun places is one of the top things retirees look forward to. Costs, however, are increasing rapidly, taking a bigger bite out of the nest egg than originally anticipated. In addition, there may be unexpected travel plans for weddings, funerals and other events that you may not want to miss. It is important to stick to a budget and build up an emergency fund that can absorb the higher costs.
* Inflation. When costs increase over time, it reduces your purchasing power, especially if you are on a fixed income. Accounting for inflation is much more important if you are in retirement, since you will not be getting the salary increases you did before. It is important to account for inflation in your financial plan and budget. You will have to spend more each year while in retirement. If you have investments, it is important to be diversified. Although stocks can be risky, having some exposure can help combat the effects of inflation over the long term. Reduce your risk also by diversifying among pre-tax and post-tax retirement accounts. See a financial planner or visit artofthinkingsmart.com for more information.
It is difficult to predict the future, especially with possible changes in the tax code or entitlement programs. It is important to continue to update your financial plan to take into account these possible expenses!