Have you planned for unexpected or overlooked retirement expenses?

American retirement marketing often gives us idealized, fantasy-tinged visions of how life without work will look. Brochures show Meg and Joe on the beach, holding hands and sipping margaritas without a care.

Retired couple having a picnick and laying around

All the soul-draining, stress-filled days with nasty bosses are gone, replaced by endless road trips, sunshine, and spa days. Without jobs taking up your time, you can start a new hobby or finally catch up on your reading and television bingeing. Unfortunately, no longer having a reliable paycheck and the arrival of unexpected expenses threaten to keep you from achieving your ideal retirement lifestyle.

Many people are not adept at estimating the costs or how much something will cost in the future. There’s a great deal of magical thinking when it comes to retirement, and this creates a disconnect between how much income people believe they no longer work and their actual retirement expenses.

For instance, over 65% of respondents to a retirement planning survey indicated they believed they do not need more than $100,000 for healthcare expenses in retirement. However, studies show that a typical retired couple will spend almost three times that amount, around $295,000!

Retired couple looking a retirement savings

That’s why it’s so critical that when you design your retirement blueprint, you make realistic assessments of how much money you’ll need and where you will spend it.

There are a few common expenses most seniors fail to include when estimating how much money they’ll need once they stop working.

Don’t forget the “tax factor.”

Many people believe that taxes decrease for retirees.

They reason that since their income will be significantly less when they quit working, they will pay less tax. However, this isn’t always the case. Historically, taxes nearly always increase. So, your tax bill in retirement could rise to a level that makes it as high as it was when you were still employed.

A solid retirement blueprint must factor in the possibility that taxes and fees will continue to increase. Some states tax retirement income more heavily than you might imagine. For example, only 12 states do not require retirees to pay taxes on their pension or qualified plan income.

Health costs could eat into your savings.

There is a misconception that Medicare pays for 100% of your healthcare needs once you become eligible. Unfortunately, this is simply not the case. By counting on Medicare to pay all their healthcare expenses 100% coverage, some seniors don’t set aside enough cash to pay for out-of-pocket costs. Also, don’t forget that Medicare is far from being free. Nearly every retiree will pay a monthly income-based premium. Medical also does not reimburse deductibles or co-pays, dental expenses, vision care, hearing aids, or prescription medications (unless you purchase Part D coverage.) And, if by choice or necessity you must retire before you qualify for Medicare, you may need to pay for private “gap” insurance.

Medicare is not free. Most retirees will pay a monthly premium based on income, and Medicare does not cover deductibles and co-pays. Medicare doesn’t cover dental expenses, vision and eyeglasses, hearing aids, or prescriptions unless you purchase Part D coverage. You will likely need to pay for supplemental coverage. Also, Medicare pays for only the first 20 days of a covered stay in a nursing home. After that, provided you are approved, you will have a co-pay of $200 per day for days 21-100. Anything beyond 100 days will come out of your own pocket. While you may think you will never need long-term care, the reality is that 70% of all Americans will require some type of long-term care assistance as they age.

Higher automobile insurance rates are another expense retirees sometimes forget to factor into their income calculations. For example, most people think that auto insurance rates decrease as you age. This is true, but only until you reach age 65. You may experience auto insurance rate hikes that spike from that point on, especially after age 80. Senior drivers, as a whole, are statistically more accident-prone than other adults. This is due to slower reflexes and other changes that come with age. Since insurance rates are partly based on the demographic group you belong to and not just your driving record and health status, the statistics for all seniors will affect your rates.

Energy costs are likely to increase. Inflation, global conflicts, green initiatives, and supply chain disruptions have contributed to record hikes in the price of energy. Rising energy costs are likely to continue, and pre-retirees must be sure to adjust their retirement plans accordingly.

Retired couple meeting with Apex Financial Group

Bottom line. Although it’s impossible to anticipate every financial challenge you’ll have in retirement, you can set aside money to deal with the most common expenses. To avoid running out of money when you retire, consider potential tax increases, medical expenses, increases in the price of gasoline and natural resources, and higher costs for car insurance. You must partner with an advisor to create strategies for dealing with potential threats to your income and locate any gaps in your plan.

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