Joey and Jane Jenkins, ages 65, decided to retire after over 40 years of work and toil. While their social security and investment income would more than cover their monthly expenses, they still felt financial anxiety.
"What happens if there is a big one-time expense we weren’t considering?" Jane lamented. "You never know what might happen. Who knows? I read a frightening article on the internet explaining how many seniors are hit with unexpected expenses."
Joey agreed. "Well, maybe we should try to live on a strict budget. That way we can save as much as possible… just in case. I guess we won’t get to live out some of our dreams in retirement. We will probably have to watch our friends travel, dine, and spoil their grandkids. But for us? It’s spaghettios and spam."
Joey and Jane fears came true, in a sense. They ran into nearly every big "unexpected" expense a retiree could face.
Dental care. Joey never listened to his Mom as a kid and didn’t brush and floss every day. At age 74, he needed a root canal and crown, and again at age 82. While Medicare doesn’t cover dental care, there are some options to reduce the cost. Believe it or not, I would say teeth are just about the largest unexpected expense retirees face.
Hearing Aids. Joey also required a hearing aid at age 74 which is generally not covered by Medicare. A pair of basic hearing aids will cost you $1500-$3000 for the pair. The fancier ones can get up in the $6000 range. While Medicare doesn't cover hearing aids, many Medicare supplements do.
Major Health Event. At age 83, Jane needed complex surgery to remove some melanomas from her back. The bill they received in the mail totaled nearly $80,000. Luckily, as long as you receive Medicare and have purchased a supplement, the maximum out-of-pocket expense in any given year is $7050. "That was a close one," sighed Jane. "I didn’t realize how much Medicare actually covers."
Prescriptions. Jane developed rheumatoid arthritis at age 68. The injections she received each month were extremely expensive. But, considering Jane was enrolled in both Medicare and an appropriate Medicare supplement, she was only liable for a maximum of $7050 a year out-of-pocket (source). There are also a myriad of options lower-income retirees can utilize to receive deeply discounted medications. In my experience, prescription costs are lower in retirement than most expect.
Car Repairs. Joey and Jane, like most retirees, purchased cars far less often and put on fewer miles (after a couple of road trips around this beautiful country). Considering the warranties only lasted five years, Joey was upset when his transmission blew at age 78. While the $3000+ bill wasn’t welcomed, it did not upset their financial lives.
Home Repair. The Florida weather took a toll on Joey and Jane’s home. During their retired years they needed to replace the air conditioner twice and get a new roof. The air conditioners cost them $6,000 a piece, and the roof set them back almost $25,000. This is one of the most common one-time expenses I see.
Helping Kids and Grandkids. Joey and Jane’s third child, Jessica, had a messy divorce, leaving her and their two cherished grandkids in a tough spot. "Joey," pleaded Jane, "We need to help them. Maybe we can set aside $1000 a month to keep them on their feet. Maybe they can even move in for a while until things settle."
While not common, in my professional experience, this can be the most expensive "problem" once retired. But it’s no reason to skimp and live small now. If it happens, it happens, and you adjust.
Some of you may disagree with my prices, as you may have a bigger roof or really bad teeth. But I’m trying to make a point here. Hopefully, as I lay out all the normal "unexpected" expenses, you might start to realize that there are fewer unknowns than you thought. Beyond this list there isn’t much else to worry about. I’ve consulted with many retirees, and these represent the vast majority of expenses.
The solution? In addition to having $20,000 or so in emergency savings, you can also take extra money from your IRA's.
This is what it looks like: Let's say you need $50,000 and the only place to get the money is your retirement account. Taking out the $50,000 will permanently reduce your monthly retirement investment income by $200. The new, lower, value of your account will make less income. It's always an option, and many times it makes a lot of sense.
The other option is to finance these expenses as they come, and simply add the payments to your monthly budget. While not ideal, as long as your monthly spending plan has room, you’re still in the clear.