Unexpected costs in retirement to plan for

When thinking about retirement, do images of traveling to far-off places, learning a new hobby, or spending time with family and friends come to mind? Whatever your visions are for the future, planning for these goals is essential to providing financial freedom to make these dreams a reality. But what about the unexpected expenses that can pop up in retirement? These surprise costs should also be on a person’s radar when creating a budget for future spending.

Creating a retirement budget

With life expectancy increasing, people can live long, fulfilling lives in retirement, spending more time doing the things they love. However, a lengthy retirement also requires savings to stretch even further and cover the planned and unexpected costs of living. Scheduling a meeting with a financial professional can provide an opportunity to discuss your desired lifestyle, expenses, and sources of retirement income. Together, you can review which options would work best and develop a financial plan to help ensure retirement savings match financial goals and can cover any unplanned expenses that arise along the way.

How to predict spending in retirement

Predicting spending in retirement involves estimating expenses based on your lifestyle, health, and other factors. Start by tracking current expenses to understand spending patterns and which categories expenses fall into (e.g., entertainment, food, travel). Since calculating retirement income needs is not an exact science, it’s important to make educated guesses about unexpected costs, too. Thinking through how your lifestyle may change in retirement and taking a systematic approach to planning makes it easier to identify potential income gaps and create a reasonable estimate to guide your retirement planning.

Unexpected retirement costs

Surprise retirement costs can potentially disrupt a retiree’s financial plans if they're not adequately prepared. Here are some common unexpected retirement costs to remember when planning for the future.

House remodel and renovation

Many retirees are choosing to stay in their current homes, especially if they’ve worked hard to pay off the mortgage or enjoy their neighborhood and community. As you get older, you may need to make your house more aging-friendly, including modifying your stairs, hallways, flooring, kitchen, and bathrooms to be more accessible. These types of renovations will likely require licensed contractors, with the cost varying depending on the project size.

Unexpected health care costs

Among retirement expenses, health care costs are often the most unexpected hit to a retiree’s savings. With the average couple over age 65 expected to spend $315,000 on healthcare alone, it’s important to consider ways to cover these costs beyond traditional retirement income. For example, certain life insurance policies may offer accelerated death benefits that can provide access to a portion of a policy’s death benefit during your lifetime should you be diagnosed with a qualifying illness.¹ Fixed index annuities are another option and can help provide growth potential and a guaranteed stream of income payments for the rest of a person’s life.

Medicare costs

Unfortunately, many retirees believe Medicare will cover a large portion of their health care needs, when in actuality, it likely won’t cover all their costs. Items like hearing aids, dentures, and dental care are not covered by Medicare. There may be an option to buy a supplemental Medicare health insurance plan called Medigap, but this supplemental policy will cost a monthly premium.

Long-term care

When picturing retirement, most people don’t want to think about long-term care, but it is a reality to keep in mind. Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and support in their remaining years. Unfortunately, Medicare and most health insurance plans do not cover long-term care, even if it’s provided at home, an assisted living facility, or a nursing home.

Loss of a spouse

The death of a spouse can be both emotionally and financially challenging. You might take stock of your current financial situation, including income, expenses, assets, and debts. To assess how the loss of a partner’s income may impact your overall financial picture, it’s a good idea to review what survivor benefits you may be entitled to receive, including:

• • Life insurance policies
• • Retirement accounts and annuities
• • Social Security or pension
• • Other financial accounts

By being proactive and seeking support when needed, navigating this challenging transition and keeping on track financially can be easier.

Planning for retirement

Once a framework is created that outlines both planned and unexpected retirement income needs, these estimates should be reviewed regularly to determine if any revisions are needed. This exercise is often a part of meeting with a financial professional to discuss any life or health changes, income updates, or if retirement plans have changed. You may also explore options for supplementing a retirement income strategy, like life insurance or annuities. Taking time to understand your retirement income needs helps ensure there will be enough money to cover your expenses, maintain your standard of living after you retire, and be financially prepared if surprise costs arise in the years ahead.

¹ Accelerated Death Benefits are subject to eligibility requirements. The death benefit will be reduced by the amount of the death benefit accelerated. Since benefits are paid prior to death, a discount will be applied to the death benefit accelerated. As a result, the actual amount received will be less than the amount of the death benefit accelerated. An administrative fee is required at time of election.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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