8 Unexpected Expenses to Prepare for in Retirement

Regardless of how much you prepare for retirement, predicting which unexpected situation might put additional stress on your bank account is impossible. These expenses can quickly derail a retirement budget if not adequately planned for. Some of these risks are more common than others. Many people only account for their current pre-retirement expenses when planning for retirement. However, an Employee Benefit Research Institute study revealed that approximately 40% of retirees agreed that their retirement expenses were higher than expected. 

Proper retirement planning is crucial to help you achieve retirement income goals and determine the actions needed to achieve those goals. Retirement planning includes identifying all sources of income and possible expenses and implementing a saving program. This article will discuss some of the most common, yet least expected, post-retirement expenses. Although unforeseen costs are often unavoidable, preparing and creating an emergency fund can minimize the consequences of such events.

Prepare for These 8 Unexpected Retirement Expenses! 

1. Home Repairs 

One thing people look forward to in retirement is being able to spend time relaxing at home. However, that same home is a potential cause of serious expenses. As with any house, there comes a time when it needs repairs and updates. One helpful tip is to get a home inspection before retiring. While inspections typically range from $400 to $500, they can expose potential dangers or problems that could cost you more in the long run. Additionally, if you plan to sell your home in the future–whether to relocate for a change of scenery, downsize, or transition into a senior living community–the inspection will get you one step ahead by identifying high-priority repairs early on. 

The general rule is to expect to spend 1% to 3% of the home's value on repairs and expenses annually. This means that if you own a $400,000 home, you should set aside between $4,000 and $12,000 each year to cover any necessary maintenance costs. However, take into consideration that this estimation may not cover all repairs some years when you have more extensive repairs, such as replacing siding or getting a new roof. 

2. Natural Disasters 

Natural disasters can be a source of significant expenses for retirees. Wildfires, hurricanes, lightning, and floods are some of the most common natural disasters causing substantial damage, costing each affected household an estimated average of $10,000. Even if you are properly insured, you cannot always count on insurance to cover the entire cost of natural disaster damages. Rather than being blindsided, prepare to cover as much of these major expenses as possible with an emergency fund, as insurance may only provide partial coverage of damage costs. 

3. Economic Downturn 

While it may not be a traditional "expense," an economic downturn can seriously affect retirement finances. Perhaps your investments are suddenly worth significantly less. Can you wait it out and hope they increase in value again, or do you need the cash and feel pressured to sell your investments at a reduced value? Ensure you are in a position where a 10%+ loss to your retirement savings/investments puts little strain on your financial health. 

On a similar note, downsizing is a great idea for many retirees. However, a problem arises if you plan on funding a significant part of your retirement with the sale of your current home. Similar to the stock market, housing prices can change overnight, and you might not be able to sell your home for as much as you anticipated. Therefore, it is best not to plan retirement around the sale of your home, especially if you have to sell before the market recovers. 

4. Fraud 

Unfortunately, fraud is a growing concern among older adults in the United States. Whether in the form of hackers stealing information, malware, email/phone scams, or any other form of fraud, criminals are trying to scam money from seniors. Every year, far too many people fall victim to these scams, which can be highly detrimental to their retirement savings. According to CNBC, scammers cheat older adults in the U.S. out of nearly $3 billion a year! 

5. Healthcare Expenses 

Healthcare should be a primary component of any retirement plan. However, it is common to underestimate expenses related to healthcare, whether due to an over-reliance on Social Security or Medicare or the emergence of new health complications. Although you cannot predict future health concerns, and while it can be difficult to think about your declining health in years to come, you cannot ignore–and must plan for unexpected healthcare expenses in retirement. 

6. Divorce 

Divorce is never an easy process. Deciding to end a marriage entails serious considerations other than emotional and societal challenges. One major factor is cost. In many cases, legal fees are the greatest financial costs of divorce. As with other expenses, prior planning can save you from an uncertain financial position. According to Forbes, the average cost of a divorce in the U.S. is between $15,000 and $20,000 per person. This cost includes court fees, attorney fees, tax advisor fees, real estate appraisal, or child custody evaluator, among others. 

According to Pew Research Center, the divorce rate for Americans over 65 tripled between 1990 and 2021. Divorce results in divided assets and increased expenses, likely resulting in split retirement funds, which may significantly lower your financial availability to invest, support, and grow your existing lifestyle. When planning for retirement, assess your individual needs, along with your partnership needs. 

7. Family Support 

When unexpected financial needs arise from family members, such as adult children or aging parents, accommodating such support requests may strain your finances if not accounted for in your retirement plan. According to USA Today, 65% of parents provide an average of $718 monthly to support their adult children financially. Additionally, approximately 48 million Americans are unpaid caregivers to an adult family member or friend, costing caregivers an out-of-pocket average of $7,200 annually, or 26% of their total income. 

These unforeseen family obligations emphasize the importance of incorporating a buffer for potential support to family members within your overall retirement strategy. By anticipating and planning for such contingencies, you can help safeguard your financial well-being and ensure that your retirement plan remains resilient in the face of unexpected familial financial responsibilities. 

8. Spousal Loss 

Losing a spouse is never something you want to plan for; however, failing to prepare financially can exacerbate the already heavy emotional loss. In addition to the average funeral costs ranging from $7,000 to $12,000, and the average end-of-life medical bills of $34,000, losing your spouse may also lead to the loss of their Social Security or pension income. 

If you or your spouse receive pension payments, opting for survival benefits prior to retiring can provide further financial support after passing. Similarly, if you and your spouse plan accordingly, delaying the higher-earning spouse's Social Security benefits can further establish the surviving spouse's financial security. During your retirement planning, seek counsel from an estate-planning attorney to ensure a smooth transition of assets upon passing. 

The Importance of an Emergency Fund 

While plenty of other unexpected post-retirement expenses exist, the previously mentioned eight are often overlooked and affect far too many retirees, which is why it is essential to have an emergency fund set aside in retirement. 

According to a survey conducted by Pew Trusts assessing financial shock among retirees, 25% of respondents faced unexpected expenses of $6,000 or more, and another 10% experienced unexpected expenses of $15,000 or more. Overall, only 2% of responders were not shocked by their unexpected post-retirement expenses, while the other 98% were left in financial turmoil. 

Regardless of your pre-retirement financial situation, be sure to reevaluate before retiring to consider the most suitable plan for your needs. If you are unsure how to prepare for your future financial needs, consider hiring a professional to help you develop a personalized retirement plan. 

What do you think? Tell us which expense caught you off guard in retirement in the comment section below!