Don’t Let Unexpected Costs Ruin Your Retirement

May 11, 2015

MoneyLife100 Determining how much you’ll need in retirement for housing, food, and other fixed expenses may seem relatively easy, but what about the costs that come out of the blue? An Ameriprise study found that 90 percent of Americans surveyed had faced at least one unanticipated issue or event that may have made retirement more difficult. The Pennsylvania Institute of Certified Public Accountants offers some insight into making sure your retirement isn’t upended by surprise expenses.

Create a Sound Foundation

Before you consider unpredictable expenses, be sure that you’re going to be able to cover the ones that you can see coming. Unfortunately, many people do not have a realistic idea about how much they’ll need to fund a secure retirement. When workers were asked last year how confident they were about having enough money to live comfortably throughout retirement, 18 percent said they were very confident, according to an Employee Benefit Research Institute Retirement Confidence Survey. That was up from 13 percent in 2013, but it still indicates that many people may be anxious about their future. If you’re worried about retirement, start making—or perhaps increasing—regular contributions to an employer or individual retirement savings plan so your savings can grow steadily over time. If you have questions about retirement planning or getting started on saving, your CPA can explain your options and offer advice for your unique financial situation.  

Take Stock of What You’ve Got

As you near retirement, it becomes easier to predict the kinds of large but unusual expenses that can undermine a budget. If you’re about to retire and you just bought a new car, for example, maintenance expenses should remain pretty low for the next few years. However, it may be smart to include more costly repairs in your budgeting down the road. The same is certainly true if you own a house. How many years has it been since you’ve replaced your roof, furnace, hot water heater, and other items that require significant replacement costs? If it’s been a while, earmark some of your savings for these repairs. If you have an aging roof and older major appliances, you’ll want to set aside more each year than if they are all relatively new.

Factor in Health Care Costs

According to a Fidelity Benefits Consulting survey, a 65-year-old couple retiring now can expect an average of $220,000 in health care costs in retirement, not including any nursing home care. Many Americans expect to rely on Medicare to cover their expenses, but quite a few are not aware that it’s not free or do not realize what percentage is covered for doctor’s visits, hospitalization, vision and hearing, or long-term care, according to a study of middle-income baby boomers by the Bankers Life & Casualty Company Center for a Secure Retirement. A total of 77 percent of study respondents had bought additional insurance to cover out-of-pocket costs that Medicare doesn’t encompass. 

Keep Family in Mind

Consider a parent whose health is declining and who may need help paying for home health care or other expenses. Or a child who loses his or her job and turns to you for help making ends meet. Or a grandchild is on the way and you want to help the young parents with expenses. There are many happy and sad reasons that retirees can find themselves digging deep to help out a family member financially. That’s why you should include unforeseen requests from loved ones into your retirement budgeting. 

Your CPA Can Help

It may seem difficult to plan for retirement when life brings so much uncertainty. If you’d like expert advice on the best ways to plan for the unexpected in retirement, be sure to turn to your local CPA. Visit PICPA’s CPA Locator to learn more.

The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premiere statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest state CPA organization in the United States.

Money & Life Tips are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.

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