Unexpected Retirement Expenses

Preparing for a successful retirement takes years of planning, saving, and dreaming about the years when you will no longer be working. When planning for retirement we recommend you think about the amount of monthly income you need to maintain your lifestyle.

However, there are some expenses you may not think of before retiring.

1. Home Repairs: Before retiring take inventory of the age of your house. What are some of the items that may need to be updated? Then come up with a plan for how to have cash on hand to pay for each of those repairs.

Some of the most expensive items include your home’s: HVAC, roof, pipes, septic system, deck, siding, and plumbing.

Planning for home repairs can alleviate a lot of financial burden by either repairing items before retirement or by creating a reserve home repair fund, in addition to an emergency fund.

2. Healthcare Costs: Did you know the average couple will spend about $250,000 on healthcare during their retirement? Even if you believe you will not spend that much on healthcare, it is a good idea to plan for the unexpected, especially with the rising cost of healthcare.

Although Medicare is available at the age of 65, it does not cover all medical expenses. There are additional premiums and expenses for prescription coverage. Dental and vision insurance is not covered by Medicare, so private insurance will be needed if you would like this coverage.

If you are planning to retire before the age of 65, be sure to know how much the cost of private healthcare will be. The premiums are a lot more than individuals think.

3. Purchasing Power: The average price of a movie ticket in 1974 was $2.00. Fast-forward to 2015, the average price was $8.50! That is a 3.4 percent increase in cost per year and a good example of the power of inflation.

Inflation is hard to see as it happens slowly over time, yet it is crucial to plan for in retirement.

• If you retired today with a monthly income of $3,000 and an inflation rate of 3 percent, in the year 2040 you would need about $6,000 per month to maintain the same standard of living.

• Outpacing inflation with a risk appropriate, diversified portfolio can help to minimize the risk of purchasing power.

4. Spending too much early on in retirement: Yay! You made it to retirement. You’ll have more free time, which often means spending more money. It might be spent on visiting loved ones, traveling, golfing, lunching, or starting new hobbies.

Before you retire, make sure to have a realistic amount of money you will spend each month. Make sure to include your day to day expenses, healthcare costs, taxes, home repairs, utilities, travel expenses, and any other items that may be important to you.

5. Longevity: If you know the exact day you will pass away, planning for retirement is easy. That’s not the way life goes. If we plan based solely on previous generations’ life spans, we may not plan for a long enough lifespan.

Planning beyond age 90 is a more conservative plan. Although you may need to reduce your monthly income, you will have a well-rounded plan that will help your income last for your lifetime.

Planning for retirement can be a daunting task, yet with the right team on your side you can be set up for success and live out the retirement of your dreams.

3 Medicare Minefields

Simple missteps when choosing your Medicare and Supplemental Plans can cost you greatly if you are not careful. Here are a few to watch out for:

1. Prescription drugs
When it comes to paying for your prescriptions, all plans are not equal. In fact, plans can change the lineup of drugs they cover each year.

According to Kaiser Family Foundation, your costs for a prescription may increase ten times between formulary and non formulary drugs. Screen the plans to see how much each insurer will pay for the drugs you are taking.

You can visit Medicare.gov (under drug coverage, find health & drug plans) to search for plans that offer coverage for the drugs you take. Make a point to compare your drug plan with others each year to assure you are getting the best bang for your buck.

2. Medigap coverage
Getting the right plan for your specific needs can be tricky. If you choose Original Medicare Part A, you need a Medigap or supplemental policy – Part B to pick up where Medicare coverage leaves off. You also need to choose a separate Part D – prescription drug plan.

You can simplify by choosing a Medicare Advantage Plan – Part C which combines all of the coverages together and handles all claim processing through one carrier.

Some Advantage Plans still require you to pick up a separate policy for prescription drug coverage. In 2016, 69 percent of enrollees went with Original Medicare Plans while 31 percent chose Medicare Advantage Plans.

Medicare Advantage Plans generally require you to use a specific list of doctors and medical facilities through either a Health Maintenance Organization (HMO) or Preferred Provider Organization (PPO).

When choosing an Advantage Plan check to make sure your favorite doctors and the facilities you most often visit are covered on the list of providers.

3. Important deadlines
Harsh financial penalties can be avoided by knowing your deadline dates. Failure to sign up during the enrollment period could mean your Part B premium may be 10 percent higher – for life – for each full year you are late signing up for Medicare Part B.

If you are 65 or older, still an active employee and covered under your employer’s health insurance plan you are not required to sign up at 65 unless your company has 20 or fewer employees. If this is the case, you may be required to sign up for Medicare Part A and Medicare Part B, which will become the primary payer when you have a claim and your employer’s plan will become the secondary payer.

Once the clock starts ticking, there is only a seven-month window to avoid permanent penalties. Call our office if you have questions regarding the deadlines or need more information about the requirements.