The Top Five Unexpected Costs of Retirement

Yahoo lists the top five unexpected costs of retirement as follows:

1. Living Longer
2. Adult Children With Money Problems
3. Higher Taxes, Higher Inflation
4. Health Costs and Dental Care
5. Repairs for Your Older Home

Here are my thoughts on these:

1. Living Longer - This is what makes retirement planning so difficult. You can make assumptions about how long you'll live which then leads to how much you'll need. But if you live longer than that, you're out of money with no real way to earn more. And if you're conservative and save for when you think you'll live plus five years, what happens if you live 15 years extra? The solution? Save and lower expenses enough where you can live off the earnings of your retirement savings without touching the principle. I know, not an easy thing to do. That's why you need to start now and follow proven steps to make yourself wealthy.

2. Adult Children With Money Problems - Another wildcard. I'd like to be able to say "they're on their own", but real life doesn't happen that way. That said, kids will need to mostly provide for themselves even in the worst of times. After all, they still have the ability to work/earn (unless they have an accident/illness that prohibits them from doing so.)

3. Higher Taxes, Higher Inflation - I think we can all bank on both of these being higher in the next decade or longer. And yes, they are both retirement savings killers. Save more, save more, save more.

4. Health Costs and Dental Care - Being healthy is a HUGE advantage in retirement and, unfortunately, one you can't count on. Of course you can improve your odds by exercising, eating right, and so on, but still there's no guarantee. So it's medical and long-term care insurance to the rescue, huh? As for dental care, I have one word: floss.

5. Repairs for Your Older Home - A good argument for downsizing to a newer place during retirement -- preferably a condo or something similar that doesn't require lawn care, repairs, etc.

Anything I'm missing? Does anyone else have more/better suggestion on how to deal with these retirement wildcards?

Comments

[Budgeting in the Fun Stuff]

1. Living Longer - I'm with FMF...just live off the principal or budget as if you'll live to be 120.

2. Adult Children With Money Problems - We don't have kids, so this isn't meant for us. If we have kids, I sincerely hope we'll be able to raise them with the same money common sense that our parents passed onto us.

3. Higher Taxes, Higher Inflation - Again, we just budget to save more than enough and live on less than most.

4. Health Costs and Dental Care - We are planning to spend quite a bit on good insurance in our retirement years. I also hope we stay active so health care costs won't sky rocket until we're truly old...like 85 plus...we'll see.

5. Repairs for Your Older Home - The smaller the home, the less repairs cost for things like the roof, flooring, etc. Our dream home for our retirement years is 2500 sq feet or less (I want 1500, hubby wants 2500...we'll see) one story in Texas. It's affordable and repairs are manageable in our area.

[Bad_Brad]

I'm amazed the Health Costs and Dental Care are #4. Wow. I guess most people expect to have those costs to some degree. The 3 items ahead of it (living longer, kids money problems, and taxes/inflation) are perhaps not as easy to anticipate. Although I would argue that higher taxes / higher inflation between now and my retirement are about as safe a bet as there is in the world right now.

[Money Reasons]

Another thing that can really affect your retirement nest egg is:

Scam Artist! I remember my gradfather contributing to some charity that called and touched his heart. Later, we found out that the charity was a scam. Technology scams would also be another concern... Look at today's identity theft and phishing crooks.

Crooks and golddiggers prey on the elderly. It might be a good idea to transfer control to smarter child or setup a trust in such a way that you protect yourself from yourself if you are older.

[Lurker Carl]

Condos have the same headaches as every other home - water heater, furnace, AC, appliances, etc eventually need repairs or replacement. Oh yeah, don't forget the HOA monthly fees and annual assessments for common area and building repairs.

[Matt]

Not understanding the cost of living in your area. If costs rise due to an influx of people it may get to expensive to live in the place you started out. Taxes, insurance, cost of food and alike if it rises greater than inflation then you are stuck with a dwindling nest egg.

I tell my wife when we retire we will need to move to get to a lower cost of living area. Even if it just 100 miles away makes a HUGH difference.

[Stephan]

great comment about the scams. its scary how vulnerable the elderly are to these, as they are unfamiliar with new technologies or how people will do anything to get their money. if you have an older parent, make sure you know what htey are doing with their finances before its too late. work with them, dont take over, or they will feel like you dont trust them/believe they are capable of living alone anymore.

[BillV]

healthcare cost and adult children have the biggest potential impact, imho.
The other can and should be planned for. The above two come out of the blue with no forewarning. So I guess you need to save anticipating that one or both may happen to you.

[Strick]

1 - working a little while still healthy takes care of a lot of the problem here. A day or 2 of work each week seems to be good for many reasons, and just a little bit of monthly income makes a huge difference in the life of the nest egg.

2 - friends and family are always welcomed to sleep on my basement pullout and join me for any cooked meals at home when experiencing hard times. Doesn't cost me much and keeps them warm and fed (all thats really important short term) until they turn things around.

3 - some Roth IRAs help with tax increases and owning a home is a great hedge against inflation.

4 - can't see a way to deal with this wildcard given insurance companies' ability to declare any charge as "unusual or non-customary" and not pay it....I've discovered the hard way "maximum out-of-pocket" doesn't mean what you'd think it would mean...

5 - take care of your home consistently throughout your life, homes don't just fall apart all of the sudden (and needing a new roof every 20 years is not "unexpected").

[Holly]

Nice open-door policy, Strick!

[curt]

My answer to #2? Just say no. Easier said than done, I understand, but many good retirement plans fail because parents can't say no to their adult children. Genuine emergencies aside, many parents simply enable lazy children for far too long. I recently saw one couple who has given 20% of their significant retirement savings to their 2 children in the past 2 years, 15% they have spent on themselves...they'll be broke in 2 years unless something changes (sad considering they started with >$2M). No special needs of the children, they just haven't learned to live within their means.

A possible #6? Being invested too aggressively or too conservatively. Think of the 100% stock portfolio around December 2007...probably not a good asset allocation if you were retiring January 2008, unless you had saved much more than your anticipated needs.

[[email protected]]

All I know is, I'm willing to deal with problems from living longer if I can ;)....but living off of interest income and not touching your nest egg is definitely the way to go if you can do it.

[Param]

Living on interest income is dangerous - as it ignores inflation!
You should live off interest minus inflation to ensure your principal & future interest & withdrawal is inflation-protected. You may lead a conservative lifestyle & leave a decent inheritance, but that is the premium for this insurance :)