The hidden retirement costs you need to plan for, according to Schwab
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Despite your best planning and efforts to prepare for retirement, you’re still likely to face some unexpected challenges after you stop working. According to Charles Schwab, there are five retirement surprises that can come as a financial shock to many older workers. However, if you’re prepared, you can avoid letting these distractions derail your golden years.
“Putting down an extra $10,000 in savings for a new roof may not seem like much in the grand scheme of things, but it can get in the way of other spending plans if you haven’t anticipated it — especially since these funds are no longer working in the market,” says Rob Williams, managing director of financial planning at the Schwab Center for Financial Research.
Consider working with a financial advisor to create or update a pension plan.
Unexpected home repairs are the most common surprise, according to the Society of Actuaries. This can include the need for a whole new roof, furnace and air conditioner, major plumbing problems, and other issues that may be lurking in a paid off home you’ve owned for years.
Experts recommend setting aside 1% to 2% of your home’s current value for annual maintenance and repairs, as well as having your home thoroughly inspected by a professional who can help you identify potential problems. Another consideration is budgeting for improvements that can help you age in place, such as wheelchair access, walk-in showers, better lighting, ergonomic door handles and more.
The hidden retirement costs you need to plan for, according to Schwab
Health care is the biggest item that retirees need to consider. While Medicare can be a huge benefit to retirees, don’t assume it covers everything. While Medicare Part A covers hospital stays and Part B covers doctor visits, you’ll still face prescription costs and copays for services. Additionally, dental, vision, and hearing care are not covered by basic Medicare.
Adding Medicare Part D coverage can handle prescription costs, albeit privately Medigap insurance may be added to address costs not covered by Medicare. Another option is to look into one of the many Medicare Advantage plans, which include Part A and Part B and can add coverage for vision, dental and other costs.
Retirees should budget between $450 and $850 per month for each person, including insurance premiums and out-of-pocket costs. If you have the option while you work, consider opening a Health Savings Account (HSA), which allows you to save and invest tax-free and does not tax withdrawals for eligible health care expenses, including Medicare premiums. Think about it talk to a financial advisor if you need a professional guide weighing the pros and cons of health care costs in retirement.
Extended care costs as you age, it can be shocking: A single room in a nursing home can cost more than $100,000 each year, while a home aide will cost you about $50,000. Medicare does not cover long-term care and Medicaid assistance is available only after retirees exhaust their assets to qualify for low-income status.
While some retirees can rely on their own substantial savings or a helping hand from family members, another option is to buying long-term care insurance or add a long-term care rider to a whole life insurance policy or annuity. The best time to shop for long-term coverage is your 50s or early 60s.
It is only natural to want to help a son or daughter affected by a financial crisis. Decide how much help you can reasonably afford and set clear limits with family members before giving away money from your retirement assets. If you expect to be paid back, structure the loan with a written agreement. If you’re giving money directly, remember that gift taxes apply on anything over $17,000 made in a year.
In addition to the emotional shock of losing a life partner, there can also be significant financial consequences. To prevent this possibility, put together a financial plan that includes the loss of each spouse, along with an up-to-date will. power of attorney and power of attorney for health care. Even a couple with simple finances can benefit from an estate plan.
Financial options include insurance to cover final expenses and loss of income, and structuring pension payments so that they continue after the pension recipient’s death. Social Security survivor benefits also need to be considered before you start collecting benefits. Surviving spouses can receive a portion of the deceased partner’s benefits as early as age 60 (or 50 if disabled). Delaying benefits past your full retirement age increases the benefit payout, which also leaves more for the surviving spouse to collect.
Consider using this free tool to match a financial advisor for professional guidance with your retirement expenses.
After you stop earning income, protecting your retirement assets is the most important financial move you can make.
Thinking about how you will handle health care costs and other unpredictable retirement expenses should be part of your retirement planning.
When and how to collect Social Security benefits is a major retirement consideration, along with estate planning, insurance, tax considerations and more. For help planning your retirement, including how to pay for health care, consider working with a financial advisor. Finding one shouldn’t be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches for free to decide who is the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
Check out ours retirement calculator to get a quick assessment of whether you have enough funds to support the lifestyle you aspire to.
Keep an emergency fund on hand in case you run into unexpected expenses. The emergency fund should be liquid – in an account that is not exposed to the risk of significant fluctuations such as the stock market. The trade-off is that the value of liquid money can be eroded by inflation. But a high interest account allows you to earn compound interest. Compare savings accounts from these banks.
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