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How to deal with unexpected expenses


You might expect plenty of things in retirement – spending time with family and friends, traveling, focusing on your health wellness.

But you’re also living in fear of unexpected expenses. In fact, roughly half of near-retirees and retirees say that’s the biggest fear they have/had about retirement, according to a recent survey published by Empower.

“Retirement is effectively a great unknown,” says David Blanchett, head of retirement research for Morningstar Investment Management. “The actual date of retirement is unknown for most, when retirement is going to end, i.e., death, is unknown, and we do – and spend – in retirement is unknown, especially before it begins.”

Two questions: Will you face unexpected expenses in retirement and, if so, how best to plan for those expenses?

Expect a spending surge. Research by J.P. Morgan Asset Management shows that household expenses, in general, tend to decline after age 45. But there is a spending surge around just before and after retirement, usually the result of increased travel, housing-related changes – such as relocation or renovation – and other types of lifestyle changes.

Expect spending shocks. Research also shows a high degree of “spending volatility” during retirement. According to the JPMorgan Chase Institute, older families show more stable income, which is expected given more stable income streams – like Social Security income and annuities – but spending volatility is high and “may result from a higher probability of unexpected medical expenditures during older age.”

And according the Society of Actuaries shows the most common financial shocks during retirement being home repairs and upgrades and major dental expenses.

“Unexpected expenses are inevitable in life, and in retirement,” says Dana Anspach, CEO of Sensible Money. “Sometimes it happens because you forgot about future big-ticket items, like auto purchases or major home repairs … But more often than not, it comes from a family emergency, perhaps an adult child that needs your financial assistance.”



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