Barron’s – May 4, 2021

One of the benefits of being retired is that your expenses typically go down, but that doesn’t mean seniors are shielded from financial setbacks. Health crises, household emergencies, and all manner of unexpected expenses may arise during retirement and derail even the best-laid spending plans.

Clayton Alexander, an investment advisor and founder of Teton Wealth Group, says there are four key expenses—from long-term care to transportation—that many retirees and older workers don’t adequately plan for, potentially putting their retirement goals at risk.

Incorporating these wild cards into planning can shore up savers’ plans for the long term, he adds.

“We’re looking at different types of life scenarios that can come up and making sure that your planning facilitates those,” he says

● Long-term care: About 70% of retirees will need long-term care at some point, and the average cost of a semi-private nursing-home room is $6,800 a month, Alexander says, citing statistics from the U.S. Department of Health and Human Services. Medicare won’t cover long-term care, and retirees who don’t qualify for Medicaid are left with the bill, he says.
Still, workers in good health often don’t envision themselves needing long-term care, so they postpone buying insurance or plan to pay for care using the equity in their homes, Alexander says.

He says workers should consider buying long-term-care insurance years before they retire because premiums are cheaper. In addition, most workers enrolled in high-deductible health-care plans are eligible to open a health-savings account, which can be used to pay for long-term care.

There are alternative strategies as well. Some annuities will increase the yearly benefit paid to retirees who need long-term care, and some life-insurance policies allow retirees to access a portion of their death benefit to pay for long-term care, Alexander said.

● Caring for family members: Seniors and workers nearing retirement sometimes end up raising grandchildren, taking in adult children, or caring for their elderly parents or spouses, and the financial and physical demands of caregiving can overwhelm them, Alexander says.
To the extent possible, he says, workers should increase their savings rates to prepare for this scenario, and have conversations with family members and financial advisors before caregiving becomes an issue. While there may be no way to avoid caregiving expenses, “the sooner you start looking at it and coming up with solutions, the better,” Alexander adds.

● Home repairs and renovations: Seniors who have paid off their homes sometimes fail to realize that they still will have housing expenses, Alexander says, including a new roof, which can cost $10,000 or more, and other repairs. The average senior spends about $2,300 a year on home repairs and maintenance, he says, citing statistics from the U.S. Bureau of Labor Statistics.

Alexander says that reality should encourage seniors to continue saving in retirement, putting several thousand dollars a year into an emergency fund. “We want to be sure that when we build plans, they have that flexibility in there,” he says.

● Transportation: Retirees may no longer face the morning commute, and many have paid off their cars, but they still should budget and save for transportation costs, including gas, car repairs, maintenance, replacement and insurance, as well as public transportation. Transportation costs represent 16% of expenditures for seniors, Alexander says, citing data from the Bureau of Labor Statistics.

“It’s one of the most underplanned items in retirement, but the costs can really bite you,” Alexander says. “We don’t want something like needing to buy a new car to completely ruin somebody’s financial plan, so that’s something that needs to be accounted for.”

By Nick Fortuna

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