I am sitting in the Mayo Clinic in Rochester, MN as I write this. It is surreal, with one hundred miles of corn separating us from Minneapolis. Rochester is a tiny, old town with some rundown homes and a massive hospital complex rising out of nowhere.
It sounds cliche, but the medical care here is entirely different. These are the best doctors in the world—literally. The diagnostic equipment is from a science fiction movie. It is incredibly well-organized and efficient.
There have been no "ah-ha" moments for my wife and her migraine. One of their pain specialists gave her a "nerve blocker" when they injected stuff into the nerves around her brain to stun them for a couple of months. It seems to have helped, but she is pretty out of it.
On a cheerier note, we moved Senay into her apartment at the University of Florida last weekend. It was a lovely new apartment building with hundreds and hundreds of college students. If you look closely, one of the people in the picture below is her.
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 surprise expenses that put them out on the street, living under a bridge, playing poker with drifters."
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. 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's 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 daily. At age 74, he needed a root canal and crown, and again at age 82. While Medicare doesn’t cover dental care, some options exist to reduce costs. Believe it or not, teeth are 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. The fancier ones can cost up to $6000. 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 are on an Advantage plan, the maximum out-of-pocket expense in any given year is $8550. "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. Most prescription plans have an annual deductible, which in 2024 can be up to $545. You pay the full cost of your drugs until you meet this deductible.
After meeting your deductible, you enter the initial coverage period, paying copays while the plan covers the rest. In 2024, once your total drug costs reach $5,030, you enter the coverage gap. During this phase, you pay 25% of the cost of brand-name and generic drugs. After your out-of-pocket costs reach $8,000, you enter catastrophic coverage. In this phase, You pay either 5% of the cost of your drugs or a small co-pay ($4.15 for generics and $10.35 for brand-name drugs), whichever is higher.
That said, some organizations and drug makers offer a myriad of discounts and programs to help defray costs.
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 $4000+ 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 retirement years, they needed to replace the air conditioner twice and get a new roof. The air conditioners cost them $8,000 a piece, and the roof set them back almost $35,000. This is one of the most common and most significant 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 monthly to keep them on their feet. Maybe they can even move in for a while until things settle."
While not especially common, 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 typical "unexpected" expenses, you might start to realize that there are fewer unknowns than you thought.
The solution? In addition to starting with $40,000 or so in emergency savings upon retirement, you can also take extra money from your IRAs.
It looks like this: 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 result in less income. It's always an option; sometimes, it makes a lot of sense.
The other option is to finance these expenses as they come and 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.
Be Blessed,
Dave
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