If you’re like most Americans, you’ve probably been dreaming about retirement for most of your adult life. You may even have a clear vision of what your retirement will be like. Perhaps you see yourself travelling the world or pursuing one of your favorite hobbies. Maybe you’ll spend time with family or simply relax and enjoy your freedom.
It’s always helpful to visualize your retirement and plan how you will spend your time. You can use those visualizations to guide your planning and even to make financial decisions.
Unfortunately, though, you can’t predict everything. No matter how detailed and solid your planning is, there will still be events in retirement that catch you by surprise. Some surprises are positive, like reconnecting with an old friend or discovering a new passion. Others aren’t so good, like unexpected costs or health issues.
While you can’t predict the future, you can prepare yourself for the unexpected. Below are a few ways in which retirees are often surprised after they stop working. Think through these items and how they might impact your planning efforts. With some advanced preparation, you can avoid being caught by surprise:
Out-of-Pocket Medical Costs
Many retirees are surprised to learn that Medicare doesn’t cover all health care expenses in retirement. In fact, there are many types of treatment that aren’t covered by Medicare, including dental care, international care, and even some types of prescription drugs and rehabilitation services. In fact, Fidelity estimates that the average 65-year-old couple will spend $260,000 out-of-pocket on health care costs in retirement.1
Medicare also typically doesn’t cover long-term care, which is extended assistance with basic living activities like eating, bathing, and mobility. The U.S. Department of Health and Human Services estimates that 70 percent of all retirees will require long-term care at some point.2 It can cost thousands of dollars per month and it is often needed for years.
There are steps you can take to minimize these risks. One is to build a health care reserve, perhaps in a tax-advantaged health savings account. You could also look at supplemental health insurance policies to fill in the gaps for services not covered by Medicare. Finally, you may want to consider long-term care insurance, which can help cover the costs generated by long-term care needs.
There’s a common assumption among many workers that spending goes down after you retire. That’s not always the case, though. Consider that when you retire you will likely have more free time and money than you have ever had in your life. That can be a dangerous combination.
Many retirees fill that free time with costly activities, like shopping, dining out, and travel. There’s nothing wrong with enjoying your retirement, but you want to do it within your budget. If your spending increases after retirement, you may drain your savings in the early years.
Fortunately, you can prepare for this surprise by planning ahead. Create a retirement budget so you know exactly how much you can spend on leisure activities. That way, you can make informed decisions about how best to spend your time.
Many workers look forward to retirement for decades. Then, when they finally do retire, they’re surprised to find that they’re bored with the free time they have on their hands. They miss having the challenges, responsibilities, and social connections that come with work. Some retirees may even battle anxiety and depression. While retirement should be a celebratory event, it can also be a difficult transition for some.
Think about how you will adjust to having a free and open calendar. Is there a chance that you will actually miss work? Do you think you will need a challenge or purpose?
If so, be creative and think of ways to fill that void. You could gradually transition into retirement, easing out of your career over the course of several years. You could also move into a part-time job after you retire. Or you could donate your skills and experience to a charity and use your free time to help others.
Ready to prepare for the unexpected in retirement? Let’s talk about it. Contact us at Fenton Financial Services. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
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