Managing Stealth Retirement Expenses

Take a look at some potential financial surprises in retirement - and how you can prepare for them.

In 2020, the Society of Actuaries surveyed retirees, reporting unforeseen expenses that had hit them in retirement.

Nineteen percent of retirees said they experienced four or more financial surprises. Twenty-four percent of retired widows said they had also been through these downfalls. The top unexpected expenses included:

• Major home repairs or upgrades -28%
• Major dental expenses - 24%
• Significant out-of-pocket medical prescription bills - 20%
• Drop-in value of the home of 25% or more - 16%
• Illness or disability - 15%
• Running out of assets - 15%
• Sudden loss in the total value of savings of 25% or more - 14%
• Going on Medicaid - 14%
• Family emergency - 9%
• Sudden loss in the total value of savings of 10% or more - 9%

While these generally happen with low frequency, shocks like long-term care, longer-term support of adult children, and divorce were the most troublesome from which to rebound. Having an adequate emergency fund will always help. Those with strategies in place for healthcare, including Medicare supplemental insurance, tended to reduce their overall health spending. They also tended to be in better fiscal health than those without a plan.

One of the most important steps you can take to help protect against surprise expenses during retirement is to review your finances before and during retirement. It's important to have a plan in place that outlines how much money you need each month and an emergency fund you can draw from if needed. Additionally, it's wise to consider purchasing long-term care insurance, annuities, and life insurance policies so that unexpected costs will be covered should they arise. LTC Insurance provides coverage for expenses associated with long-term care services, such as nursing home stays or home health care services that are not typically covered by Medicare or private health insurance. Annuities provide a steady income stream throughout retirement and may include some protections against market fluctuations. Life insurance policies offer financial protection for your family in the event of your death, so they are not burdened with unexpected expenses. These insurance products can help reduce the risk associated with surprise retirement costs.  Another often overlooked source of money during retirement is a reverse mortgage.  They can create a line of credit on which to draw to cover unforeseen expenses without having to sell your home.  For many retirees, home equity is their largest pool of capital, but without having immediate access to that value.  A reverse mortgage line of credit allows that access.

It's important to remember that planning is key to helping protect against potential unexpected costs during retirement. Be sure to speak with a qualified advisor about LTC Insurance, annuities, and life insurance policies to find out which option might be best for you. Additionally, review your finances regularly and create an emergency fund that can help cover any unexpected expenses. By taking these steps now, you can better prepare yourself for any surprises that may come up during retirement.

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