Millions of working Americans feel financially unprepared for retirement. They worry that they won’t have enough saved to comfortably live out their golden years. It’s not an unjustifiable concern, as many folks really don’t have enough saved and need to double down on their efforts to ensure they don’t go broke in retirement.
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Additionally, even those who are diligently saving for retirement may not be saving enough. GOBankingRates spoke with financial experts to identify five expenses that often catch retirees by surprise — and how to prepare for them before they upend your finances.
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Home Repairs and Maintenance
If you’re a homeowner, prepare for “surprise” costs around home maintenance and repairs.
“Retirees often find themselves with big, unexpected, necessary repairs at precisely the time when their income is fixed,” said Erika Kullberg, a personal finance expert, attorney and the founder of Erika.com. “A new roof, significant plumbing issues, HVAC replacement, siding issues or foundation problems can all be quite burdensome.”
Kullberg recommended establishing a home maintenance fund before work is needed — or downsizing to a smaller property that is newer and needs less maintenance.
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Financial Needs of Adult Children
Another unexpected cost that comes up in retirement for many points to the needs of retirees’ grown kids or other family members — and the guilt-laden obligation to provide for them. This one hits close to home for Nate Towers, CRPC, director and financial advisor at Five Pathways Financial.
“My parents, who have been married for almost 47 years, met in October, got engaged in November, married in February, and had a baby nine months later in November,” Towers said. “Ever since then, they’ve only had about six months total without someone else living in their home.
“Whether it was adult children needing a temporary place to stay between homes or for other financial reasons, or my mom’s sister, who is single, aging alone and doesn’t have an effective retirement plan, living with them,” Towers said.
This conundrum can strain finances in retirement, especially when you’re living on a fixed income.
“The reality is retirees feel obligated to help family members, which can strain retirement savings,” Towers said. “One of the best things you can do is set clear boundaries and communicate your financial limitations with family members. A lot of people think retirees have a lot of money, but that’s not necessarily the case, so being upfront about this is key.”
Travel and Entertainment
Another cost that may not be so much unexpected as it is underestimated is the cost of travel and entertainment in retirement.
“Many retirees underestimate how much time they’ll spend on leisure activities, especially early in retirement when they want to travel,” Towers said. “It’s important to set a realistic budget for travel and hobbies and possibly consider cutting back on discretionary expenses if travel becomes a priority — kind of like those Costco trips where you pick up something you didn’t really need.”
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Inflation
If you haven’t designed a retirement portfolio that hedges against inflation, which is inevitable, you’ll likely find yourself in financial trouble down the road.
“While you’re working, you don’t feel the effects of inflation as much because you typically have a rising income over the course of your career,” Towers said. “But in retirement, when you may have a fixed income, inflation can be felt over the course of three, five or 10 years.”
To protect yourself from the devastating impacts of inflation, it’s necessary to create a foundational source of income that you won’t outlive.
“This could be Social Security, a pension from work or possibly setting up a private pension using a fixed indexed annuity with an income rider,” Towers said. “Additionally, invest in a diversified portfolio that includes assets that tend to outpace inflation, such as stocks or TIPS (Treasury Inflation-Protected Securities). These aren’t foolproof, but they can give you an upper hand in dealing with this unexpected or underappreciated event in retirement.”
Long-Term Care
Lastly, prospective retirees often ignore the likelihood of needing long-term care that Medicare doesn’t cover.
“This is one of those areas that’s kind of like talking to someone about healthcare in the future,” Towers said. “It’s like asking someone in July, ‘What are you going to do if you get a cold in December?’ Most people respond with, ‘I’ll figure it out at the time; I don’t need a plan right now.’”
Unfortunately, the longer you wait to invest in it, the more expensive long-term care can become.
“I’m not a huge fan of traditional long-term care products, but there are hybrid products out there where you can allocate assets to help cover care or utilize life insurance for long-term care purposes,” Towers said. “Regardless, having a plan is very important.
“Some people say, ‘Well, I have kids; they’ll take care of me.’ But the reality is that’s not a great long-term plan, because those kids will be aging, too, and the last thing most people want is to become a burden to their children. So again, take some time to think about these unexpected events and find a solution — a strategic plan that can help address these concerns.”
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This article originally appeared on GOBankingRates.com: 5 Expenses That Catch Retirees by Surprise — And How To Prepare for Them
