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Unexpected retirement expenses

In retirement, large expenses like medical bills or family needs can surprise you and your finances. Careful planning is key to overcoming hurdles and retiring comfortably.

Tags: Retirement
Published: February 28, 2020

Americans with a written retirement plan in place report increased confidence levels and less stress.1 But how can you plan for what you don’t see coming? 

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Expense: inflation

Consider an average annual inflation rate of 3 percent. At that rate, $50,000 today would be worth just $23,880 in 25 years, due to diminished purchasing power.


Approach: start early

The earlier you start saving, the more compounding interest can help you reach your retirement goals. And don’t forget to account for inflation.


Expense: underestimating needs

A person 65 years or older spends an average of $45,756 a year.2 Underestimating your retirement living expenses may make surprise expenses harder to deal with.


Approach: plan your needs, wants and wishes

One way to avoid this is by making realistic estimates of what your expenses will be. Start with basic needs (taxes, utilities, groceries and insurance), then your wants (new vehicle or home improvements) and then your wishes (travel or hobbies).


Expense: medical bills

It’s projected that healthcare spending will rise 5.5 percent on average from 2018 to 2027.As we age and our health declines, healthcare costs become more significant.


Approach: Consider a health savings account

A health savings account (HSA) could help you cover unexpected medical expenses. You can contribute pre-tax money to grow untaxed in an HSA account. And funds won’t be taxed when you use them to pay for qualified medical expenses.


Expense: Long-term care

Almost 70 percent of people turning 65 in 2019 will need long-term care at some point in their life.4 Expenses from conditions that are chronic and require extensive healthcare, such as Alzheimer’s, are generally not covered by Medicare.


Approach: increase your savings and insurance

Boosting the amount you contribute to your retirement savings annually, or whenever you have extra cash, may help prepare your nest egg for significant expenses. Also, long-term care insurance might help ease some of the financial strain of future illnesses.


Expense: longevity

The average age of retirement in the U.S. is 63 for women and 65 for men years old, and the average length of a person’s retirement is 20 years.5 It’s important to consider that you could live longer.


Approach: diversify your investments

Investing in a variety of assets could potentially help protect you from fluctuations in different investment markets such as bonds, stocks or real estate. And you may want to move toward a more conservative investing approach as you near retirement.


Financial professionals can help

One way to have more confidence and clarity in retirement is to work with a financial professional that can help plan for your expected — and unexpected — expenses.

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1 “2019 Retirement Confidence Survey.” Employee Benefit Research Institute.
2 “Consumer Expenditures in 2016.” U.S. Bureau of Labor Statistics.
3 “NHE Fact Sheet.” Reuters. Centers for Medicare and Medicaid Services.
4  "How much care will you need?" U.S. Department of Health and Human Services.
5 “Average Retirement Age in the United States.” The Balance.