Are You Prepared for Key Retirement Expenses?

I came upon an old Walt Disney quote the other day that I found insightful. Walt said, “There is no magic in magic; it’s all in the details”.

Hmmm . . . I got thinking.

I got thinking about how this quote might mean different things to different folks, but naturally it made me think about all of the details that go into preparing for a successful retirement. After all, a solid retirement planning system is complex and should anticipate a myriad of possible risks, such as interest rate, inflation rate, market risk, business risk, and of course, longevity risk. A true retirement system will ensure that all potential roadblocks have been anticipated before you clock out from work on your last day. If there’s anything we know for sure, it’s that life is uncertain, and we should expect it to throw us a few curve balls from time to time.

So, I overheard a conversation recently that really drives point home for me. I was standing in line to buy a few things at the Windfall Market, behind a couple who appeared to be in their mid-70’s. I was trying not to eavesdrop, but it was hard not to, being in such close proximity. They were talking about the husband’s recent dental visit, and what sounded like some pretty extensive work he needed done. It seems the estimate from the dentist gave them real sticker shock. I overheard the wife tell her husband that they’ll just need to cancel their trip to see “Ben and the kids” this Christmas to cover the dental bill. I’m guessing this means they couldn’t fly to see their son and grandkids because their money was needed elsewhere, unexpectedly. 

As I left the store, I felt pretty bad for this couple . . . I really did.  They seemed like nice folks.  Just think, one unplanned event like this and they had to cut into their holiday and travel budget to cover it. It got me thinking about how important it is to consider the many details that could make or break a retirement system. Just slapping together a few investments and calling it a day isn’t enough – like Walt Disney said, “it’s all in the details”. And so this week, I’d like to take a look at how detailed planning could prevent the type of sticker shock the grocery store couple experienced. 

For starters, we need to understand if we’ve really anticipated some of the most common challenges that may arise in order to plan for them. Did you know, though, that only about one in four retirees has not experienced any kind of shock event in retirement, according to a study from the Society of Actuaries₁. And these shock events — like a huge dental bill, for example — often come with a surprising price tag. Unlike someone who is still working and receiving a regular paycheck, these types of surprises can be especially difficult for retirees, who rely on their monthly income plan. 

One common area that’s overlooked during the planning process is caregiving. Many of us are part of what’s called the “sandwich” generation, caring for both aging parents as well as adult children. Obviously paying a long-term care facility to help with a parent’s care gets expensive, but this doesn’t include other costs such as your time away from work and the corresponding loss of wages, potentially smaller Social Security benefits or retirement plan assets due to time out of work, transportation to and from medical appointments, and much more.

When it comes to our children, many parents are still subsidizing them. I know I am!! In today’s tough job and housing markets, this might include welcoming them back into the home, picking up the grocery tab, assisting with their possible health care needs, divorces, bankruptcies, and a myriad of others. 

Get this, folks – spousal caregivers between the ages of 59 and 66 had 50% less in IRA assets, 39% less in non-IRA assets and 11% less in Social Security income, as well as less income than married non-caregivers, the report found₂. I’m not trying to discourage anyone from helping their loved ones, but its cost is something you need to plan for to ensure you don’t shortchange your own retirement.

Then there’s your own health care. Most of us will qualify for Medicare one we turn 65, but it’s a mistake to think it will pay all of your health expenses in retirement. In fact, a study by Fidelity₃ found that couples who are 65 or older can expect to spend around $315,000 on health and medical expenses throughout retirement above and beyond that Medicare will cover, and this doesn’t include long-term care costs. A recent report from RBC Wealth Management₂ found that healthy 65-year-olds can also expect to one day spend as much as $100,000-per-year on long-term costs, which include nursing homes, home care or hybrid options. These are costs that many folks fail to account for in their plans, and the repercussions can be extreme.

And if you own your home, prepare for the upkeep. With many seniors owning and living in their own homes, the Society of Actuaries report₄ found that 28% will one day experience unexpected repairs or undergo major home upgrades in retirement. The report also found that 16% of retirees said they were surprised by their home value dropping by more than 25%. Don’t think that the regular repair bills you experience now will cease once you retire. Things break down, it’s a known fact for homeowners. 

Folks, none of these challenges are insurmountable. You can still retire and thrive in your later years – you just need to plan for them. The key is to anticipate and build the unknown into your plans. Nobody can predict what tomorrow may bring, but a detailed retirement system with a downside risk mitigation program will go a long way towards creating your own magical retirement. 

I want to wish all of you the Merriest of Christmas’ and in these crazy times always remember the true meaning of Christmas.  

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. 

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