Four Overlooked Retirement Expenses To Consider
Planning for retirement involves more than simply ensuring you’ve saved enough for everyday expenses and the occasional vacation. It’s about thinking through and preparing for EVERYTHING you might need to maintain your comfort and enjoy your golden years without financial stress. Whether you’re retiring next month or 20 years from now, a key part of a successful retirement plan involves identifying ANY and ALL potential costs you might encounter at any point during your retirement. This allows you to take meaningful steps today to ensure you are financially prepared for them, because the last thing you want during retirement are surprises. While many people have a solid grasp of the retirement costs they are likely to face, there are several common expenses that, over the years, I’ve noticed people tend to overlook. Here are four you should keep in mind so that they don’t become a burden for you down the road.
Expense Number 1: Home Repairs and Remodeling
Your home is likely your sanctuary and possibly your largest single assets, but as the years pass, it will require upkeep to keep it that way. Beyond routine maintenance, there will likely come a time when your home will need major repairs or maintenance, such as replacing the roof, updating the plumbing, installing a new HVAC system, or dealing with unwanted visitors – all of which could cost thousands or even tens of thousands of dollars. Many of these repairs also need to be done every 20 years or so, meaning it’s entirely possible that you’ll need to plan to do them more than once during retirement. And failure to do so, could mean your home’s value suffers as a result. Additionally, as you age, you may need to take on some remodeling projects to modify your home for accessibility and safety – think ramps, railings, or bathroom safety features. This is especially important because as we get older, our homes that were once pillars of security and safety for us may very quickly become one of the most dangerous places we can be. Falling is one of the leading causes of injury among people 65 and older, and some 55% of fall injuries for this group happen inside the home, according to the Age Safe America1. So, in order to reduce the risk to your safety, quality of life, and checkbook that could come from a serious medical injury in the home, it’s extremely important that you have a strategy to cover the cost of making your home safer during retirement.
Expense Number 2: New Car Purchase
While your current car may be getting the job done just fine – and you may be the type to say, “I’m driving this sucker until the wheels fall off” – it’s easy to forget that one day, they will. As your vehicle ages, the cost of repairs and maintenance increases, and eventually, replacing it may be your best option. On average, cars last about 12 years, so chances are, you’ll be replacing yours at least twice during retirement2. Considering the average cost of a new car is just around $48,000 and climbing, it’s a significant expense that you should definitely factor into your retirement plan…unless your planning on getting a whole lot of steps in3!
Expense Number 3: Home Insurance and Property Tax
Even if you’ve paid off your mortgage, you’ll still need to cover home insurance costs and property taxes. Now, I am sure most of you reading this already know that; however, many people underestimate how much these expenses will increase each year during retirement. According to Bloomberg Intelligence, home insurance costs have risen over 10% per year over the last 5 years4. Property taxes, which are calculated as a percentage of your home’s assessed value, have also increased quite significantly in line with the increases in home values, which sit at roughly 6.3% per year over the same time period5. So, while your increasing home value is great for your net worth, those increases comes at a cost – more taxes. As you plan for retirement, it is important to regularly review your property taxes, home value, and insurance premiums to ensure you are prepared for these expenses, which tend to rise faster than the overall inflation rate.
Expense Number 4: Long-Term Care Costs
We’ve saved long-term care costs for last as it is the most significant and challenging expense that we often see people overlook when retirement planning. As you age, you may require assistance with daily activities or need non-standard medical care, either at home or in a facility (i.e., long-term care). Unfortunately, Medicare and most standard health insurance plans do not cover long-term care costs. Even if you have long-term care insurance, the cost of long-term care can be substantial and may exceed what your policy covers, depending on the type of care you want and need. According to Genworth’s Cost of Care Study, in Washington, DC, the average cost of long-term care ranges from $28,000 per year for adult day care to $169,000 per year for a private room in a nursing home6. And this isn’t typically a one-year expense – men, on average, spend 2.2 years in long-term care, while women spend 3.7 years.
While you may not be concerned about long-term care at this very moment because it is an expense that you may not see for decades, the data is clear: most people will require it. According to the U.S. Department of Health and Human Services (HHS), roughly 70% of Americans who reach age 65 will develop severe long-term care needs at some point before they die7. And, without a plan to cover them, your options are quite limited. You could rely on family members who may lack the time or resources to provide the care you need, sell assets like your home, which is a decision most people would prefer to avoid, or do nothing and live out your remaining years in distress. All not great options, right? So, with such a significant expense on the horizon, it is important to plan for it as soon as possible because the likelihood you will need it is quite high.
Planning for a Successful Retirement
A successful retirement is one where you retire when you’re ready, stay retired, and maintain your comfort and peace of mind throughout. But a successful retirement doesn’t happen by accident. It happens when you have a solid plan that addresses every aspect of your life and finances before the big day comes. While this article provides a glimpse into a few things you may want to consider, it is by no means a comprehensive guide to retirement planning and does not focus on the most important aspect of your retirement plan…you. Everyone’s goals and financial situation are completely different, so everyone’s plan will look different. Click below to schedule a time for us to discuss your unique situation so that together, we can build a plan to help get you to retirement and through retirement without any hiccups. And remember, regardless of how far out that might be, the sooner you begin planning, the more successful you will ultimately be.
Sources:
1. Age Safe America. (n.d.). Fall statistics and solutions. Age Safe America. Retrieved September 14, 2024, from https://agesafeamerica.com/fall-statistics-and-solutions/
2. Bureau of Transportation Statistics. (n.d.). Average age of automobiles and trucks in operation in the United States. U.S. Department of Transportation. Retrieved September 15, 2024, from https://www.bts.gov/content/average-age-automobiles-and-trucks-operation-united-states
3. Kelley Blue Book. (n.d.). Average new car price tumbling. Kelley Blue Book. Retrieved September 15, 2024, from https://www.kbb.com/car-news/average-new-car-price-tumbling/
4. Axios. (2024, April 15). Homeowners insurance is a stealth inflation driver. Axios. Retrieved September 17, 2024, from https://www.axios.com/2024/04/15/homeowners-insurance-is-a-stealth-inflation-driver
5. U.S. Census Bureau & U.S. Department of Housing and Urban Development. (n.d.). Median sales price of houses sold for the United States [MSPUS]. Federal Reserve Bank of St. Louis. Retrieved September 16, 2024, from https://fred.stlouisfed.org/series/MSPUS
6. Genworth Financial. (n.d.). Cost of long-term care by state | Cost of care report. Genworth Financial. Retrieved September 16, 2024, from https://www.genworth.com/aging-and-you/finances/cost-of-care
7. U.S. Department of Health and Human Services. (2019, April 3). What is the lifetime risk of needing and receiving long-term services and supports? Office of the Assistant Secretary for Planning and Evaluation. Retrieved September 17, 2024, from https://aspe.hhs.gov/reports/what-lifetime-risk-needing-receiving-long-term-services-supports-0
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James.
