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Don’t Get Blindsided by Unexpected Retirement Costs

Dont get blindsided by unexpected retirement costs

Finances continue to be a top retirement concern, as surveys show. In a recent study by the American Institute of CPAs, 57% of CPA financial planners reported their clients’ foremost retirement concern was “running out of money.” When asked what the sources of this client stress were, 76% of the financial planners said healthcare costs. Other causes of financial stress were lifestyle expenses (52%) and unanticipated costs in retirement (47%).

Given these concerns, it’s critical to ensure we’re ready for monthly income needs in retirement. But there are a number of retirement expenses which can give us the slip. Some costs are hard to project, such as healthcare costs. Then there are life changes which can completely transform a retirement budget, such as doting on grandchildren.

Here’s a look at some retirement costs to keep in mind – and to help you avoid the financial shock of unexpected or harder-to-predict areas of retirement spending.

Retirement Costs Overview

Keep in mind that retirement spending will vary from household to household. Retired households spent an average of $42,779 per year, according to the most recent Consumer Expenditure Survey data from the U.S. Bureau of Labor Statistics. Here are some of the more impactful areas of retirement spending to consider.

Healthcare costs in general. Even if someone has consistently good health, they’ll still have to pay for insurance premiums, any applicable co-payments, and items which aren’t covered by insurance. According to HealthView Services, an average, healthy 65-year-old couple retiring this year will face up to $377,412 in total retirement healthcare costs. When inflation is factored in, the costs go up even more.

Over a 30-year time horizon, that’s $6,290.20 in annual costs per person. HealthView Services’ total healthcare project includes insurance premiums, deductibles, co-payments, and costs for items which insurance doesn’t cover. This brings us to the next point.

Medicare premiums and other related expenses. As an important retirement milestone, Medicare covers about 60% of healthcare costs. So, supplemental insurance may be worth consideration. In general, Medicare costs include:

  • Part A hospital insurance – most retirees don’t have premiums for Part A. However, for hospital stays longer than 60 days, there are co-pays and deductibles to deal with. At present, coinsurance can range from $322-644 per day depending on the tenure of stay, and there is a $1,288 deductible for each benefit period.
  • Part B medical insurance – At present, premiums range from $121.80 to $389.90. An annual deductible of $166 is also involved, along with co-payments for physician visits.
  • Part D prescription drug insurance – At present, the nationwide average for monthly premiums is about $34. Deductibles and co-payments are involved, as well. If prescription drug costs reach a certain threshold known as the “donut hole” ($3,310 now in 2016), you have to pay a higher percentage for the costs. This applies until you reach the annual out-of-pocket limit (currently $4,850). The donut hole decreases each year and will close out in 2020.


Supplemental insurance requires you to be enrolled in Medicare Parts A and B. There are basically two types: Medigap and Medicare Advantage Plan (also known as Part C). Enrolling in a supplemental insurance plan will help maximize your coverage, which can help with overall cost control. You might want to get familiar with all of your options to find the best plan for your needs.

Long-term care expenses. Not everyone will need assistance from an at-home worker or services at a nursing home or adult daycare center. Nevertheless, if you end up needing long-term care, it’s expensive. According to the Administration on Aging, Department of Health and Human Services, average costs in 2010 were:

  • $6,235 per month for a semi-private room in a nursing home
  • $6,965 per month for a private room in a nursing home
  • $3,293 per month for care in an assisted living facility (for a one-bedroom unit)
  • $21 per hour for a home health aide


A long-term care insurance policy may help alleviate these cost burdens. It can be costly, but it’ll help preserve life savings over the long run.

Housing expenses. This one may be a surprise. According to Consumer Expenditure Survey data, retired households paid an average of $14,607 in annual housing costs. As we age, the tasks of home maintenance and repairs become more difficult to do ourselves. So these tasks become outsourced costs. Moreover, housing costs include insurance, utilities, mortgage payments (if applicable), rental costs (if applicable), property taxes, and household furnishings.

One way to account for these expenses, and other miscellaneous expenses in general, is to keep 12-18 months’ worth of monthly expenses in cash holdings. That can provide some a financial safety net for ongoing, unanticipated costs relating to housing needs or even emergencies.

What about Other Costs?

Of course there are a number of spending categories which we didn’t cover here: food, transportation, clothing, taxes, and more. You can see the spending patterns of retired households and older Americans in general by looking at Consumer Expenditure Survey data.

One way retirees and pre-retirees have secured greater financial independence is through annuities. Through careful annuity strategies, you can maximize your retirement income, an effective way to supplement the income dollars you draw from Social Security, a pension, or other vehicles. Many retirees allocate their annuity income toward fixed-income needs for more budget flexibility.

If you're ready for personal guidance with your own retirement income plan, SafeMoney.com can help you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

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