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4 Unexpected Expenses to Prepare for in Retirement

Plan for life's curveballs with these simple tips 

Worried mature woman sitting at the table at home and using a digital tablet.

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En español | Even the best-laid plans fall flat if you’re hit by one of life’s curveballs. Be aware of these financial threats.

Nursing homes

You’re at the highest risk of running out of money if you or your spouse winds up spending several years in long-term care, according to Jack VanDerhei of the Employee Benefit Research Institute. If you can, buy long-term care insurance. Even a skinny policy is better than nothing. If illness descends, redo your financial plan immediately.

Bear markets

You want to avoid having to sell too much of your investments just as stocks are falling, especially in the earliest years of your retirement, when declining markets can do the most damage. Try to keep enough cash in the bank or in a money market fund to ensure that you can pay your bills for at least one year, preferably two, without having to sell securities. Your stash doesn’t have to be large enough to pay all your bills, just those not covered by your guaranteed income. (Don’t include these savings as part of your nest egg when you calculate your annual spendable assets.)

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The loudest objections to steady spending usually come from young retirees who want to use their healthy years to have fun. Take trips! Buy a boat! No problem — as long as you’ve looked ahead and know when you’ll have to start cutting back. You don’t want to have to start bagging groceries at 75 because you lived too high in Paris.

Medical problems

If you retire before 65, the age for joining Medicare, don’t drop health insurance, even for a year. A major accident or illness will drain your savings mercilessly. Even with Medicare, health care can force a cutback. Twenty-nine percent of Medicare households spend 20 percent or more of their budget on health care, says the Kaiser Family Foundation. 

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Working Woman Ready To Quit and Have Fun

Sally, 62

Sally is single with no children. She’s due a nice company pension that, along with Social Security, could cover her living expenses. She has $300,000 in a 401(k) and $100,000 in taxable mutual funds, and she wants to stop working and travel.

Sally should consider living off her pension and savings for now, instead of claiming her Social Security retirement benefits at 62. Her monthly check will be 36 percent higher if she waits until her full retirement age and 76 percent higher if she waits until 70. A larger monthly Social Security check will be welcome when she’s older and traveling less. She could live to be 90 or more.

She needs health insurance. If she taps her savings to pay the premiums, she should try to hold down her income enough to qualify for Affordable Care Act subsidies — a huge benefit. In 2019, for example, most singles will get subsidies if their modified adjusted gross income doesn’t exceed $48,560. (The limit is $65,840 for married couples.) But if filers make just $1 more, their premiums will jump by thousands of dollars.

Thanks to her pension and relatively young age, Sally is free to invest for growth, with 50 or 55 percent of her portfolio in stocks. She might carve out a special travel fund from those assets, in addition to the money she keeps in the bank for everyday expenses. Whenever she taps her travel fund, she can turn to her cash savings and pension to gradually refill it.

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