Retirement planning can sometimes feel overwhelming, partly because there are so many costs you have to figure into your budget. First there are the fun expenses to consider, like travel and hobbies. But then there are the not-so-fun expenses too, such as healthcare and day-to-day bills.
No matter how much you prepare for retirement, you'll never be able to predict with 100% accuracy how much you'll spend. But there are a few expenses that may slip your mind, and if you don't account for them, it could seriously cost you.
Long-term care, such as nursing home care, is easy to forget about because most people won't need it until the very last years of their life. If you still have decades before you even leave your job, the thought of moving into a nursing home is probably the last thing on your mind.
However, long-term care can be one of the most expensive costs you'll face in retirement. Nursing home care is more expensive than you may think, with the average semi-private room costing around $6,800 per month -- or nearly $82,000 per year -- according to the U.S. Department of Health and Human Services. And if you shrug this expense off thinking you won't need to worry about it, keep in mind that approximately 70% of retirees will need long-term care at some point, the HHS also found.
As if those numbers aren't intimidating enough, the kicker is that you typically won't receive any help from Medicare to cover long-term care costs. You may qualify for Medicaid assistance, but there are strict eligibility requirements. Not only do you essentially have to be broke to qualify, but you also have to prove that the care is medically necessary by receiving a series of physical and cognitive assessments. If you don't qualify for Medicaid, that means you'll likely have to foot the bill on your own.
There are a couple of ways to prepare for these costs as you head into retirement. First, you can build the expenses into your retirement fund. Among those who end up needing long-term care, the average person needs it for around three years, according to the HHS. That means, on average, long-term care will cost a total of around a quarter of a million dollars. You may spend more or less than that (or you may not require long-term care at all), but by boosting your savings to cover those expenses, you'll be prepared for anything. Consider saving in a Health Savings Account if you're eligible.
Another option is to enroll in long-term care insurance. You'll need to enroll relatively early (typically before you retire or during your early years of retirement) to get the best rates, because the longer you wait to sign up, the more you'll pay. Long-term care insurance can charge hefty premiums, but if you expect to need long-term care later in life, it can beat paying hundreds of thousands of dollars out of pocket.
As you're creating a retirement budget, you're likely accounting for everyday costs like a mortgage and utilities. But you'll also inevitably have to deal with home repairs and renovations, and these costs can take a serious bite out of your budget.
The average person age 65 and older spends roughly $2,300 per year on home maintenance and repairs, according to the U.S. Bureau of Labor Statistics. That may not sound like a significant amount, but when you're living on a fixed income in retirement, spending a few thousand dollars per year more than you'd planned can throw off your entire budget. Then if you encounter any major expenses -- like if your basement floods or you need to replace the roof -- those costs can potentially wreck your retirement if you're not prepared for them.
Of course, you can't predict when these types of issues will arise, so it's difficult to prepare for them financially. But it's smart to set aside a couple of thousand dollars per year in your retirement budget to go toward home maintenance and repairs.
It's also a good idea to build a solid emergency fund so you have a specific stash of cash just for these types of costs. You may not face home repair costs every year of retirement, so in the years you don't spend anything on maintenance, you can simply keep the cash in your emergency fund until you do need it.
Retirement is supposed to be a time when you can relax and focus on yourself, but many retirees spend their golden years helping care for someone else.
You may still have adult children who live at home or need financial assistance, and you could also be helping elderly parents or other aging relatives. That can put a strain on your budget, especially if you're helping with college tuition, hefty healthcare bills, or nursing home care.
Dealing with these costs in retirement can be tricky, because it can be tough to say no when a family member asks for help -- even if you can't afford to help them. But you also can't risk putting yourself in a bad financial situation by helping more than you should.
Before you retire, think about how much you're willing and able to help family members. That might involve some tough-love conversations about finances, but it's important to establish these ground rules before you retire. If you do plan to help your family financially, make sure you budget for that the best you can so you're not putting your savings at risk.
Planning for retirement takes a lot of hard work, and there are dozens of factors to consider as you're saving. Although it can be difficult to think about all the potential obstacles you may face in retirement, the more thorough you are when planning, the more enjoyable your golden years will be.
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