Unexpected Retirement Expenses and How You Can Prepare
Retirement is just the beginning of another adventure, and preparing for a successful one takes years of saving, planning and dreaming about the years you won’t be working. Pre-retirement planning is significant to everyone, but especially imperative for federal employees. Being proactive about your financial future is crucial in ensuring that you will have the kind of retirement you’re dreaming of. While you may find it easy to plan for most expenses, there are unexpected road bumps that many retirees face. Before you live it up early in retirement, it’s important to plan for unexpected expenses that can break your retirement’s “nest egg” years down the road.
Here are some of the most commonly occurring unexpected expenses that occur during retirement:
Family Members May Need Your Support
Whether it’s your parents, children, or grandchildren, you’re probably going to be called on to offer some financial support at some point in your life. Life events such as the birth of a child, a wedding, health issues, or a divorce are difficult to predict, but they may occur. You don’t want to fall into the trap of bailing out your children often, or your nest egg will begin to whittle away. You’ll need an allowance for significant life events that may call for your assistance.
It’s no secret that the costs of healthcare are rising nationwide. You may experience a big blow if you or your spouse is suddenly diagnosed with a chronic illness. According to the Centers for Disease Control and Prevention, 3 in 4 Americans age 55 and over have a chronic condition that needs constant medical attention. Treating a long-term illness is expensive, and you can expect a severe jump in out-of-pocket fees and prescription costs. Being able to pay your medical expenses is one of the most significant financial strains of retirement.
The effects of inflation can be felt long before you leave your daily grind. Since you can’t predict how much inflation will rise by the time you retire, accounting for it is crucial because you won’t have salary increments that employed individuals earn. Therefore, account for inflation in your budget.
Damage after Natural Disasters
Depending on where you live, your property could be at risk of significant damage as a result of a natural disaster. Flooding, hurricanes, wildfires, and storms may be a potential catastrophe that could wreak havoc on your life and finances. Your insurance deductible may be high, and when you live in an area that doesn’t require insurance, you may have to dig deep into your pockets to fund the damage. Either way, many retirees are not prepared to handle such unexpected turmoil on a limited budget.
Soon after retirement, you may consider relocating to a warmer climate or closer to where your children live. Further into retirement, you could find the need to downsize to cut off the cost of maintaining a big home, or for medical reasons.
Sudden Pension Cut
Counting on a pension that’s not there could block you from achieving your retirement goals. Federal employees should not rely on pensions, as systems could change at any time. States are deep in pension liabilities and may begin cutting retiree pension payment to account for the difference. You don’t want to face a sudden pension cut when you retire and for this reason, you must be prepared for the worst-case scenario if you don’t get what you were expecting.
Alterations In Tax Codes and Entitlement Programs
Practically, it’s impossible to foretell what will happen to taxes and entitlement programs in the near future. Since nothing seems certain, spread out your risk by having pre-tax and post-tax retirement accounts and avoid relying entirely on entitlement programs.
There’s a significant rise in financial fraud. It’s impacting most Americans in the form of credit and debit card breaches, malware designed to steal financial information, hackers who get information from credit bureaus, malware designed to take sensitive financial information, phone scams, email scams, and more.
How to Prepare for Unexpected Expenses
Even the most cautious planners may be taken by surprise once they reach retirement. While you certainly can’t plan for everything, having a contingency plan in place for when things get skewed is sensible. Start an emergency fund to pay for unexpected home repairs and medical bills. Get adequate life insurance for your family or your spouse, and they’ll have enough money to live on and settle your estate when the time comes. You may also consider creating a fallback budget that you’d use if you had a sudden change in your expenses.
Take a look at our WAEPA Guides & WAEPA Checklists, tailored specifically to the needs of Federal Civilian Employees.
This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.