Financial Advisors help of pre-retirees should include planning for unexpected expenses. Medical costs in retirement are now anticipated to require an estimated $315,000 for the average 65-year-old couple, according to Fidelity research. That’s a known cost, but what about all of the other unexpected expenses that arise in retirement? The ones individuals should plan for, but don’t, because they aren’t even aware they exist, or they vastly underestimate the cost? These days, retirement looks different than it used to. Here are four “surprise expenses,” as reported in a recent Employee Benefit News article, and how financial advisors can help them prepare.
Travel and restaurants are among the biggest expenses, especially early on in retirement, when retirees tend to be more active. As reported in EBN, “The financial services firm Capital Group found that 40% of retired baby boomers have spent more on travel than they expected to in their post-work years. And according to the Bureau of Labor Statistics, the average American aged 65 and older spends $1,993 per year on eating out.”
Financial advisors can help retirees manage these expenses by encouraging them to find ways to cut costs. These might include getting a travel credit card that allows them to earn points to pay for hotels and flights or exchanging currency ahead of time to avoid unnecessary fees. Retirees should also budget generously for the things they want to do most, then add a buffer on top of that number in case of unforeseen expenses.
Home maintenance is another category where costs can add up. Even if the mortgage is paid off, retirees may still face sunk costs when it comes to keeping up their homes. “A report by the Society of Actuaries, an Illinois-based professional association, found that the most common “shock” to retirement budgets was a major house repair or upgrade, with 28% of American retirees reporting this kind of expense,” EBN reported.
Financial advisors could encourage retirees to reach out to local volunteer groups, such as a church or senior center, for help with home repairs, rather than relying on a pricy repairperson or doing it themselves, which can be dangerous.
When it comes to transportation, retirees often spend more than they expect, too. Even though they aren’t going to a job every day anymore, they still have to get around town for doctor’s appointments or grocery store runs. EBN reported that, “The average American 65 or older spends $7,160 on transportation per year, according to the Bureau of Labor Statistics.”
Of course, these costs depend largely on whether or not the retiree is still driving. Financial advisors can help clients plan for the eventuality that they may not be able to drive anymore, which can get expensive. Other, less costly solutions may include having a volunteer deliver groceries to a retiree’s home instead of driving to the store themselves.
It’s important for retirement savers to have conversations about unexpected costs early and often. Financial advisors should encourage these discussions with clients and offer practical solutions in addition to planning for unexpected expenses.
