“It’s more expensive than you think.”
Baby boomers often hear that warning about the costs incurred in retirement. And disciplined, intelligent savers take it seriously.
There’s the looming threat of uncovered healthcare costs and years of hefty long-term care bills. There’s the allure of taking up new hobbies (from accumulating pricey collectibles to getting hooked on upscale spa treatments). And there’s the pull of the needy, whether it’s charities soliciting donations or family members seeking “loans.”
Yet even the most diligent, knowledgeable retirees can fall into money traps. Unanticipated expenses can creep up on them, upending their best-laid plans and turning what was supposed to be the wealth preservation phase of life into a wealth evaporation panic.
Here are three of the most surprising costs that can break even the most careful retiree’s budget:
1. Still healthy after all these years. Whether you work with a financial adviser or draft your own retirement spending plan, you’ll need to predict how much you’ll spend over time on living large: travel, entertainment, club memberships, etc. You may assume you’ll slow down as you age and gradually spend less on these extravagances. But if you stay healthier for longer, the cost of fun can add up.
Sidney Divine, an Atlanta-based certified financial planner, divides retirement into three phases: the go-go years of active travel and leisure, the slow-go years when health constraints (or caregiving for a spouse or someone else close to you) limit your horizons and the no-go years when your health declines and it’s a chore just to leave home.
Setting aside more money to enjoy the go-go years makes sense. But what if you retain your good health and vibrancy into your late 80s and 90s? You’ll want to spend more to take trips and experience more joyous highs. And that can leave you with dwindling funds for the uncertain years you have left.
2. One last move, again. Retirees tend to think, “I’ll make one last move into a place where I see myself growing old.” So they move to that place. And then they keep moving.
Moving isn’t just stressful and disruptive. It’s expensive. In addition to hiring a moving and storage company, you can pay thousands of dollars for related costs such as buying new home furnishings, redecorating or remodeling and even paying more for auto and home insurance (depending on where you move).
“You might move and think, ‘This will be where we retire to and that’s that,’” Divine said. “But then you may want to live in two places” or wind up relocating again as circumstances change.
Divine cites a married couple, both 80, who moved from Florida to North Carolina to be near family after one of them struggled with poor health. But now the spouse has recovered, they’re both feeling great and they miss Florida. So they plan to return there every winter for a few months. That means they’ll be saddled with extra housing costs that they didn’t anticipate.
3. Charity begins at home, and beyond. In budgeting for your retirement years, you set aside a fixed percentage for annual charitable contributions. But some retirees experience excessive guilt as they continue to live comfortably while others endure hardships.
“There’s a guilt that sets in that they should be doing more to help people around them,” said Chris Ward, a certified financial planner in Edgewood, Ky. “There’s not a way to anticipate our emotions three or four years into retirement” and how we’ll feel about giving money to a variety of causes, both close to home and on a broader scale.
As a result, Ward warns that you might feel compelled to give away a bigger portion of your nest egg than you initially intended. If you’re haunted by the thought, “I can afford to do more,” your nagging conscience can make it hard to stick to your plan.