What are 9 retirement expenses which I may not have considered?

Ralph
00:00:00

Have you ever wondered if your retirement savings will be truly enough? Listen, many retirees are shocked when they discover expenses they never planned for. So today I'll share some real stories about nine retirement costs that have blindsided my clients over the years. And trust me. Some of these might keep you up at night if you're not prepared. So stay tuned as we explore these hidden retirement expenses that could derail your golden years.

Announcer
00:00:29

Welcome to the Ask Ralph podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:00:59

Thank you for joining me today on our journey to mastering our finances continues as we try to do that with balance in our Christian faith and we learn some valuable lessons of stewardship. Now yesterday's show, if you missed that, we talked about the 9 most common estate planning mistakes. Make sure you catch up on that. We discuss some crucial errors that could affect your family's financial future. And more importantly, I explained to you how to avoid them. So if you missed it, I'm going to encourage you to go back and check it out.

Now today's question comes to us from Tennessee and this one comes from Peggy. And this one really touched my heart. This is what she wrote. She said, "Ralph, I'm 55 and thought I had my retirement perfectly mapped out after 30 years of teaching. My husband and I have been diligent savers, putting away what we thought was enough for our golden years. We've calculated our basic living expenses, factored in healthcare costs from my old district's retirement plan, and even set aside a little travel fund to visit our grandchildren in Colorado twice a year. But last week, I had coffee with my friend Susan, who recently retired. She was in tears, Ralph. Despite having what she thought was a solid retirement plan, she's facing expenses she never saw coming. Now I'm lying awake at night, wondering if I'm missing something crucial in my planning. My biggest fear is having to become a burden to my children because I failed to anticipate important expenses. Could you please share some real-life examples of expenses we might not be considering? I want to make sure I'm truly prepared, not just thinking I am. The last thing I want is to have my retirement dreams turn into a financial nightmare." Peggy, I hear y'all now.

And that is a great question. And it strikes at the heart of what many people tell me. And that's that retirement fear, those fear of those unknown expenses. And you're right. They can derail your plans. Because it's not just about planning. It's about planning with the wisdom and foresight. And as you've asked, you want to know the not so obvious expenses. And I've got nine of them to share with you today.

So let's get right to it. But before we do that, you know I always mentioned that this show thrives on your questions. But today, I want to ask you some questions. I built a listener survey, and I want your honest opinion about the show. And listen, it's only going to take five minutes or less. I promise you that. And here's where I put the money to my mouth.

And that is every person who completes the survey is going to be entered into a $250 Amazon gift card drawing. That's right. All you got to do is complete the survey. Be honest about it. You get to the survey by going to askralphpodcast.com/survey, and your answers are going to be impactful. They're going to shape the show moving forward.

Now I need your answers, I need those surveys complete by midnight on December the 10th, because we're going to do the drawing on the 11th of December. And somebody is going to be the lucky winner. And I would love to hear from you. Again, that's at askralphpodcast.com/survey. I'm going to give it to you one more time. And that's askralphpodcast.com/survey.

You know Peggy, your concern about the unexpected reminds me of a verse from the book of Isaiah, that's chapter 41, verse 10. And it tells us this. "Fear not for I am with you; be not dismayed, for I am your God; I will strengthen you, I will help you, I will uphold you with my righteous right hand." And I think that's particularly meaningful in what we're talking about, because we're thinking about retirement planning. And it reminds us that while we might feel anxious about future uncertainties and listen, we all have those times. Just remember this, God promises to strengthen and help us through every challenge. Now this doesn't mean we don't plan carefully.

A lot of people take that to the extreme. Now while God will provide, I'm not saying that at all. He will. But we've also got to do our own planning and we've got to be careful about it. It means that we can plan with confidence. That's the other side of this Peggy. Knowing that we're not alone in the journey.

You've got me, and more than that you've got Christ, which is even better. And that scripture verse perfectly sets up our discussion today because it reminds us that while we need to be diligent in our planning, we can find peace, Peggy. And that's knowing that God is our ultimate provider and source of strength. He will help us navigate these financial challenges just as He promises to be close to us in times of uncertainty.

But let's get to the content today and I'm going to share nine things that you might not be planning for. So Peggy, like I said, here are nine surprising retirement expenses I've seen catch my clients off guard and I'm going to throw some pro tips as well to help you work through them.

First one. This one is massive. And that's adult children support. Let me tell you about some clients I have, Tom and Sarah. Now, Tom and Sarah were great at meticulously planning for their retirement. They work 35 years, worked hard in corporate America. They had their dream beach house picked out. They would talk about it from time to time.

And hey, Ralph, we're going to move to, I think it's Myrtle beach, South Carolina. We got this house picked out. We are all ready to go. As soon as we retire, we're going to enjoy those golden years. Well then life threw them a curve ball. Their son, he's a successful software engineer, all of a sudden lost his job during the tech industry downturn. And I remembered him telling me, they said, yeah, we're just going to help him out for a month or two. Well, all of a sudden that month or two turned into eight months of covering his $3,000 a month mortgage payments. So think about that.

They came out of pocket with $24,000 in unexpected expenses. And they want to help their son out. And that's what they saw as their goal to do that. But what did it do? It forced them to postpone their beach house dreams. They really derailed their plans. So here's my pro tip for this one. Set clear boundaries with adult children before you retire. Have a discussion with them. Consider creating a separate family emergency fund.

That way, that won't impact your core retirement needs. And I'm going to tell you right now, my professional advice is I recommend setting aside 5 to 10% of your retirement savings specifically for family-related unexpected expenses, because guess what? I work with a lot of retired folks. These things happen.

It happens routinely. Client will come in, they'll say, well, we had to help out our son this year. We had to help out our daughter this year. We helped out our grandchildren this year. And it's great that you can do that. But you've got to plan for that. And that's why I say, create that family emergency fund and put 5 to 10% of your retirement savings specifically in this category we call family related unexpected expenses.

So that's the first one. And that is adult children support. Second one. Dental work. You're like, Ralph, you just cut right to the chase, didn't you? Yeah, I did because here's the deal. Let me tell you about Martha. Now Martha was a high school math teacher. She has spent 40 years doing that. And all throughout her life, she went to the dentist every six months.

She had a regular checkup. She thought, “Hey, I'm in good shape for my dental health. But then in her third-year retirement, all of a sudden, things started to happen. Listen, I'm 52. I see things happening to my body. I'm sure you see it as well. This one wasn't her fault. She was in a bicycle accident, went over the handlebar she told me, and it's not funny, but it's kind of funny looking back. And all of a sudden, her mouth was a wreck. She needed multiple implants and crowns. And the dentist said, are you ready for this Martha? It's going to be $15,000. And she was shocked. Hey, it shocked me too. But here's the thing she didn't know. She didn't know that Medicare doesn't cover dental work. And all of a sudden, Martha had to dip into her emergency fund that she had hoped to preserve for other purposes. A lot of people don't understand that. Medicare does not cover dental work. So she had to get the work done because she had all kinds of issues because of being in that motor or that bicycle accident. So here's my pro tip and that is consider purchasing separate dental insurance before retiring or the other thing you can do is set up a dedicated health savings account.

That's an HSA while you're still working. Now I've done a bunch of shows on those. You can check those out on our webpage. And in these accounts, these HSA accounts really offer triple tax advantages and could be lifesavers for those unexpected medical expenses. So Martha could have been contributing to that

HSA while she was working in buildup that we'll call it that medical emergency fund nest egg. And she should have also understood that that Medicare doesn't cover dental work. A lot of people don't know that. So if you know anybody on Medicare, make sure you share that tidbit. Well, so that's the whole dental work one. Let's look at number three and that's home modifications. And this one catches people off guard as well.

And this is that a lot of people don't consider. So let's talk about John and Mary and they'd love their colonial style and catch what I'm getting ready to say, two story home. They had raised their children there. They had Christmases and Thanksgivings and Easters and at the backyard weddings.

And it was their dream home, is where they always want to spend their time. But they never imagined needing to modify it. Well, fast forward a few years and John starts to experience knee problems. Hey, listen. Like I said, I get older. I start to feel these aches and pains as well. I was at the chiropractor yesterday cause my shoulders feel weird and he's like, well, guess what

Ralph, it's going to happen. You're getting older. What are you going to do? But in John's case, their master bedroom's on the second floor and it made climbing stairs cause his knee problems nearly impossible. And listen, I've seen this particular situation way too many times.

So when my wife and I bought what I consider our last home, we'll see what happens. But when we did that, first thing I look for is I wanted a first-floor master bedroom. So if I could make it up to that first floor, then I'd be golden.

But John hadn't done that. And they ended up spending $27,000 installing a stairlift. But it wasn't just that. They had the widen doorways. They had to create a wheelchair accessible bathroom. And listen, that was never in their original retirement budget. They never even considered it. But if he was going to function in that home, those modifications were essential. And what did it do, that required them to significantly adjust their lifestyle. Something they hadn't planned for.

So here's my next pro tip. A lot of people don't think about this. Consider getting a home assessment in your 50s. That's right. When you're in your 50s, to understand potential future modification needs. At least you can plan for them. You can budget for them. Hey, you might make a decision that this house isn't going to work with us. We may need to look at going to a ranch house or something that has an elevator, maybe a condominium or something like this, because many of these changes can be made gradually. You don't have to do them all at once. You don't have to be in that crisis situation like John found himself in. You can plan for these things while you're working, when you're still earning income. So that's number three, those home modifications.

Let's now get number four. That one's technology updates. I'll tell you about my client, Barbara. Now Barbara was in education as well, but she happened to be a retired school principal and she said, Ralph, she's, I'm a tech savvy person. And that's a good thing because all of a sudden, her kids and grandkids decided to move across the country.

I think her son or her daughter can't remember which had gotten a new job. Well Barbara, the grandmother, the doting grandmother, wanted to stay in touch. And the great thing is we have tech to do that, but here's the problem. It's not cheap. So all of a sudden she finds herself needing a new laptop.

She had to upgrade her entire digital life. So she bought a new laptop that was 1200 bucks. She bought a new smartphone that was 800 bucks. So she could do FaceTime and all those kinds of things. Well, her internet service wasn't robust. So she had to upgrade that. That's another 75 bucks a month. She also had some regular software subscriptions because they all told her, look, you want to have antivirus software.

You want to have all of those things. So what she told me in the end, she said, Ralph, I'm nearly spending $2,000 a year to stay connected. And the other part a lot of people don't think about is how quickly technology can evolve. It's just part of our lives at this point. But it requires constant updates. And like I said, the key for her was she wanted to maintain that basic communication with her family. And she also, you know, wanted to be able to manage her online banking.

So she had to embrace this technology. So here's my pro tip. Here's the thing. If you don't listen to anything else I say today, and this is regardless of whether you're retired or not retired, budget for technology upgrades every three to four years and consider learning programs at your local library. Because of many of these offer free tech training for seniors. Now I'm one of these guys. I've got the apple phones.

I get that new apple phone every year. It's not necessary, but I just like the coolest things. But you've got to think about every three to four years, you may have to upgrade that cell phone or that smartphone, you may have to upgrade that laptop, there might be some software that you need to upgrade.

You just have to build that into your budget. So that was number four and that was technology updates. Number five is pet care. It's another one a lot of people don't think about, but a lot of people that retire, maybe they didn't have a pet or they have a pet that's getting up there in age. Let me tell you about my friend, David. Now David had his beautiful 10-year-old golden retriever.

His name was Max. And let me tell you, David and Max were best buds. They were inseparable. And David, when he was doing his retirement plans, he planned for Max. He planned those routine vet visits and that food. But what he hadn't planned for was when Max needed emergency surgery. Max had something called twisted stomach.

And I'm not a vet, but listen to this one. So this twisted stomach ended up costing David $5,000. Now he was going to spend the money. It's an emotional decision, but he was going to save his beloved pet. Like I said, those two were inseparable. But it meant digging into his emergency fund. So he had the money to do it, but it took months to replenish it. Now I did a show a few months ago that involved my own son. Now my son's clearly not retired as a young guy. But I talked about pet insurance, so here's my pro tip here. Look into pet insurance before retirement. And also considering up a separate pet emergency fund.

So two things. Look at pet insurance before retirement. And it may be you set up an emergency fund just for those pets. And also, here's another thing you can consider doing this as a sort of a money saver. You can research local veterinary schools that might offer discounted services. Don't dispute it. Don't dismiss that. There are some schools out there that do that. So that was number five on my list. Pet care. Let's move on to number six. And that's family celebrations. I bet nobody thought about this one.

We had a neighbor, her name was Susan, and now Susan had a huge family. And let me tell you, they were all over the country. There was so many events. There was weddings, there's unfortunately there was funerals and there was baptisms and there was graduations. Let me tell you, Susan was getting her frequent flyer miles. And she never calculated just how many trips there would be.

She told me, she said, Ralph, in one year alone, listen to this. She attended three weddings that was $3,000 in travel and gifts. I'm an account. I'm an analytical guy. So you know I'm going to give you numbers. So three weddings, $3,000 travel and gifts. She'd attended two college graduations.

That was $2,000. She had three family reunions. That was $3,000. So think about this. In one year, her celebration, these are happy times. Her celebration related expenses totaled nearly $8,000. And she said, Ralph, I do a lot of budgeting, but I never even thought about budgeting for that. But these are also things she wouldn't dream of missing. So here's my pro tip. And that's create a celebration fund. And set clear limits for gift giving. Consider alternative ways to participate. Make sending meaningful video messages, maybe you just can't afford the travel. Maybe you don't want to travel.

Maybe your health is not great. So there's things to, so first thing, set up that celebration fund. But then make it a limit. Like this is how much I can spend this year. And if you find that you can't get to everything in one year, then maybe you do some alternatives. Maybe you send a meaningful video message, but you don't travel.

So you save on travel expenses, but you still present a gift. So that's just something to consider. And like I said, that's number six, that's family celebrations. Let's look at number seven. We're going to get back into the medical area. And that's what I call long-term care insurance. You're probably familiar with this. There was a client of mine, Michael and Patricia. Great couple. But they never thought about long-term care insurance until they got retired. Till they had already retired. I remember him saying to me, Ralph, Hey, we're on the ball.

We just retired. We got our Medicare set up. And now we're meeting with the broker to talk about long-term care insurance. Like I said, he thought they were being proactive, but here's the problem.

They were in shock when they realized that waiting until they had retired, had doubled their premiums. See, they had heard inklings about some friends and they said it would be about $2,000 annually for each of us. But now because of them waiting till after retirement, that price tag was now $4,000 a month, not a month, but annually each. So that's an $8,000 annual expense they hadn't planned for. So here's my next pro tip. Investigate long-term care insurance options in your 50s. So we've got a couple of things to do in our 50s. We're going to look at our home and we're going to look at long-term care insurance because then premiums are lower. And you might also look at what's called a hybrid policy that combines life insurance with long-term care benefits.

That's a great thing to ask your broker about. So that's number seven, that's long-term care insurance. I got two more left. Number eight is property taxes. A lot of people don't consider this as an unexpected expense. I tell you about my client, Janet. Now Janet owned her home for over 30 years, and she thought she understood property taxes. You know, she got the tax bill every year. When she still had a mortgage, the mortgage company would pay it through escrow.

And then once she paid off the mortgage, she would get that bill. And she knew every September, she had to make that payment. But then all of a sudden, fast forward three years into retirement and her area went through what they call reassessment. Listen, we just had this here in Delaware where I live, and people are going crazy about it.

People are freaking out. Because they hadn't done this for years and I'm going to tell you right now, most assessments from what I've seen in my own, parcels have gone up 500%. You did hear me right. 500%. So in Janet's case, they went through an assessment and her property taxes jumped 40%.

And on a fixed income, that was a brutal thing. So it was a $2,400 annual increase. So all of a sudden, she had to significantly budget and change her budget to make for that adjustment. Now just tell you as an aside in Delaware, they've reassessed, but they're going to, they're going to decrease the tax rates.

It's not going to be one for one. At least that's what they're telling us, because if they do that, there's going to be a lot of people in Delaware going to be leaving the state because a 500% increase is just not tangible. So what's the pro tip here. And this is where I'm going to encourage you to research your area's property tax history and future development plans. Understand what your area is doing.

What is the history of property taxes? How frequently they're going up? What are the future development plans? If they've got these big projects, guess what? Somebody has got to pay for them. So ask the realtor. If you're buying a home, do some research. If you're already in a home, this might be the time to think about you know, do I want to look for a new home?

Maybe you got that second-floor master. You've got other things going on. And you might consider this as part of that decision. And then worst-case scenario, you want to set aside a tax increase buffer. I'll put that in my budget and as what I call the tax increase buffer and put 3 to 5% annual increase into that. That way you're not surprised by that. And you hope it doesn't happen, but you've built it into your, to your plan. So that was number eight, and that was property taxes. Let's look at number nine and the last one for today is inflation. And listen, we've all felt this one. I have so many clients that have been complaining about and talking about this. I read this particular story

I'm going to tell you on a Facebook post. And like I said, many of my clients are feeling this same thing. So let's look at Robert and Carol. And they thought their $4,000 monthly budget was more than enough to cover them in retirement. They think for $4,000 a month, our houses are paid off. Our houses paid off.

Our cars are paid off. We don't have any credit card debt. We're going to be in great shape as my dad just say, they're going to be a fat city. But then fast forward into the current economy, we're in five years into their retirement, and all of a sudden, they realized that that same in lifestyle because of inflation now requires $4,800 a month. Think about that.

The math of that. That means they had planned on 4,000, their budget was set up for that, their investments were set up for that, their income streams are set up for that. And now all of a sudden, it's $4,800 a month, but what does that look like? Here's the Ralph, here's the accountant coming out. That's $9,600 annually that they're short. Almost 10 grand. And they hadn't prepared for that.

They hadn't budgeted for it. And they had to make a lifestyle changes and those were dramatic changes. They had to really make difficult choices about their lifestyle based on something they couldn't control when that was inflation. It's hurt a lot of people out there. So here's my pro tip. You got to build an inflation hedge into your retirement planning and assume, here's my assumption. Assume 3 to 4% annual increases in expenses.

You just have to build that in it. And while you're doing that, talk to your broker, you might consider investments that historically keep pace with inflation. There's a thing called the TIPS, which is a Treasury Inflation Protected Security. Ask your broker about that. I'm not an expert in that area but you've got to build that into your budget.

Assume that prices are going to go up 3 to 4%. Now we hope we don't see something like we saw the last three and a half years. And I'm not going to get crazy political, but I hope there's light at the end of the tunnel here coming up in January the 20th. But man, we have seen increases and I'm not sure they're ever going to go back. So I know I kind of feel like I'm being pessimistic today, but those are the nine unexpected cost

I see retires dealing with. And I'm going to share some planning strategies to help you get through those in just a few minutes. But first, let me ask you this. It's Christmas time. Are you losing sleep wondering how you'll afford everything on your holiday list? Are you tired of starting every new year buried under a mountain of holiday debt?

You want to create those magical Christmas memories without that financial stress that usually comes with them. And let me tell you, this is a stressful time of year. It's stressful emotionally for people because maybe they've lost a loved one. It's stressful spiritually, because maybe they are feeling weird about their spirituality and it's stressfully financially. We just talked about inflation. Everything costs more.

Well guess what's going to cost more, gifts and Christmas and putting that dinner together, whatever your particular things that you do, whatever those traditions are. So I want you to discover peace of mind. I wrote a guide; it's called Surviving the holidays without going broke. And I really put this together because I wanted to help and see you're, in that guide, you're going to learn a proven budget system that actually works. No nonsense.

If you do these things, you will be able to get through the holiday season without being scared because you're going to set up a budget. I also talk about some smart shopping strategies to slash your costs. I talk about ways to create magical memories without maxing out your credit cards. Another section is how to teach those kids or maybe their grandkids gratitude. Show them what it means to not be so gimme, gimme, gimme more and more and more. Show them how to build that gratitude.

I share a pretty cool example in there about how to set up that gift structure. And finally, the central core of this. Is how to keep faith and family at the center of your celebration. Look, here's the deal. Don't let January's credit card bill steal your holiday joy. Download your free guide now. You get to it by going to askralphpodcast.com/christmas. And you can make this your most meaningful and affordable holiday season yet. But you got to start by downloading the guide. Your stress-free holiday season starts here. Go to askralphpodcast.com/christmas. I'm going to give it to you one more time. It's askralphpodcast.com/christmas.

You can download it and share it with your friends and family. And listen, these real-life stories that I share today, we realized that retirement planning isn't just about big numbers. It's not that simple. It's about preparing for life's inevitable surprises. And you could say about life as I get older, there's always something around the corner. There's always a surprise. But we can plan for those inevitable surprises while maintaining our peace of mind and financial security.

So let me share with you those planning strategies. These are in no particular order, but as I was putting the show together, I thought of these things. So things here's number one. Start retirement planning as early as possible to take advantage of compound interest. Listen. This will be less stressful the earlier you start. So if you have a young person in your life, that's just starting out, they might think, why are you sending me this episode? Send them this episode and get them to start thinking about that habit of putting away for retirement. Share with them these unexpected expenses. Maybe it'll scare them into putting more into that.

And I just did a show about how much they should be putting into retirement. So share that one as well. Second thing. Don't rely solely on social security benefits. It's not going to work. It's not going to maintain your lifestyle. And that's why I come to the next thing. And that is develop multiple income streams to protect against unexpected expenses. Have those multiple income streams. Don't put all your eggs in a social security basket. I've talked on other shows.

Maybe you have some investments. Maybe you have some real estate. Maybe you have a side job keeps that mind sharp. But develop those multiple income streams and plan for them. Maybe you have a phase in retirement. There's another thing you've got to absolutely do. You got to regular review and adjust your retirement plan to account for changing circumstances.

Listen. Your retirement plan that you set up three or four years ago, isn't going to work now because prices are 30% on the, for the most part higher. So maybe you got to consider that part-time consulting work or freelance work as a buffer to bring some more income in. Another thing you absolutely got to do.

And one of the ways you can do it is by listening to this show. So I commend you and I appreciate you listening but stay informed about tax law changes and new retirement planning options. You know, build those strong relationships with financial advisors who understand your values and goals. Listen. I met with somebody about a week ago on the phone.

And they said, Ralph, my financial advisor doesn't listen to me. I said, it's time to change then. Because you want to have a relationship with a financial advisor who understand your values and goals. And as we talked about a couple of times on this show, maybe you got to create multiple emergency funds, maybe there's that pet emergency fund.

There's that medical emergency fund. You know, create those earmarked for specific purposes. Like we said, health, maybe it's home repairs and improvement. It's that well, what happens if I can't get to the second floor. Do I need to put a lift in. Another thing a lot of people don't talk about is review your insurance coverage annually, not just at retirement.

Meet with your insurance broker. And here's thing you have. This one is takeaways again. Consider setting aside 15 to 20% more than your calculate retirement needs for unexpected expenses. Those adult children who need help. Or the kids move away, and you need that technology update. You can also investigate things like HSAs and IRAs to maximize your retirement savings while you're still working. And here's the thing you must do. Have that budget, but also have that retirement expense tracker and monitor where your money is going. And here's my last pro tip for the day. And that is build relationships with reliable service providers. Those contractors, those mechanics. Do that before you retire, get all your systems checked out. Like my mother's husband, he passed away.

Now my mother passed away, like I said, two years ago. But he knew he was going to be retiring, and he had all this work done ahead. He had the roof checked; it needed to be replaced. He did it while he was working. He had this electrical system. It needed upgrade. Guess what? He did it while he was working. Plan all those things out before you reach that retirement age. Now tomorrow we're going to be discussing important changes coming to social security in 2025, so you don't want to miss that episode. I'm going to talk about some tips and tricks with social security as well. And remember, my passion is to help you achieve financial success.

That's why I do the show. That's why I turn on this microphone. I played out these episodes because I want you to achieve financial success. I want to see you live out your dreams. And I want to see you grow in your faith and I know together we can master your finances, not just from that secular perspective, but from that Christian perspective, because we're going to balance finance and faith. So as I always end the show, stay financially savvy and God bless you abundantly.

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