Often Overlooked Expenses in Retirement

Often Overlooked Expenses in Retirement

| October 29, 2019

We often talk about expense tracking with our clients.  We even talk about projecting that expense tracking into retirement to help us determine how expenses will change when we are no longer working.  This can be a challenging task because there are always unexpected and overlooked expenses that pop up.

Here are 3 of the most commonly overlooked expenses retirees will encounter.

1.Replacement Costs - Big ticket items like a new furnace, appliances, roof or a fresh coat of paint on the house.  While working many of these items could be taken care of through cash flow, however once work has stopped, these expenses are likely funded through a portfolio withdrawal.

2. Relatives in Need - This can include aging parents needing additional care or younger family members who may find themselves in a bind.  Often this includes situations like an adult child who gets laid off or divorced, or a grandchild who needs help with college tuition.

3. Required Distributions - While most people know that after reaching age 70.5 the IRS requires you to start pulling money out of tax-deferred accounts.  However many people fail to understand the ripple effects from these distributions.  The RMD can push you into a higher tax bracket which could result in more taxes paid.  It will also cause an increase in income which could translate into an increased Medicare Part B premium.

While it's not possible to anticipate every financial surprise later in life, there are a couple steps you can take that may help.

1. Try to avoid major expenses in the first 5 years of retirement.  This is when your portfolio is most vulnerable to bear markets.  A big withdrawal during a bear market is a double edge sword because it not only depletes the account quicker, it also leave less money there to help improve returns during a bull market.

2. Continue to save money for big ticket items and home repairs.  Having some money set aside will help ease the shock of an unexpected expense that may show up at the worst time.