There are retirement expenses you can foresee and plan for, and then there are some that you simply can’t predict. Planning an income for retirement is no easy task and you always need to leave room for unexpected expenses that arise. Here is my list of the Top 5 Unexpected Retirement Expenses that should be factored into any reliable retirement plan:
Inflation/rising costs
Remember when your grandpa use to tell you that a loaf of bread in his day cost 10 cents? It’s something that I’m sure we’ve all heard and the hidden lesson is that inflation impacts you over a lifetime. On a year to year basis, the increase is small but the impact over an extended period of time can present a challenge when trying to work out your cost of living.
When you’re still working, inflation is often offset by increases in earnings, but in a self-funded retirement, you are your own payroll manager. Your purchasing power is reduced as the price for goods and services increase. So it’s important to factor this into your retirement plan and not assume that your living expenses will be the same in 2027 as they are today.
Tip – Given this, it is essential to invest for the long-term and accept some investment risk, else you run the real risk of not being able to afford a loaf of bread.
Medical expenses
Figures from the AIHW (Australian Institute of Health and Wellbeing) say that 2/3 of Australian adults are overweight or obese, and Diabetes Australia estimate that over 500,000 Australians may have type 2 diabetes without knowing it.
The hard reality is that this is certainly something to put into consideration and to be weary of as you age. With these types of figures, no doubt this will exert considerable demand on our health systems.
Healthcare in Australia isn’t cheap and it doesn’t look like it’s going to get any cheaper. One of the most basic and important use of finances in retirement is to be able to maintain private health insurance, afford aged care and be able to pay for medical costs.
Tip – Like inflation, it is wise to make plans based on increased medical and health spending as you age.
Helping your children, grandchildren or parents
Retirement planning should include the possibility of having to lend financial support to members of your family in the future. Certain life events like weddings, children, new house, divorce or health issues are impossible to predict so it’s important to make allowances for these circumstances, no matter how unlikely it seems right now.
Having said this, it’s also important to recognise a problem if you’re having to repeatedly bail your children out of financial trouble.
Tip – Be sure to discuss the matter with your adviser and assess what impact providing financial help would have on your own retirement plans.
Living Longer
In the recent ABS Census results from 2016, Australians are living much longer than before. According to Accurium SMSF Insights, a 65 year old couple has a 50% chance of one of them surviving beyond age 95.
Faced with the very real prospect of a 30+ year retirement, we need to be careful we don’t outlive our retirement savings and plan for more years of self-funded retirement.
Tip – plan your retirement savings to last at least 5 years longer than your statistical life expectancy.
Divorce or death of a loved one
The reality is, that at some stage of our lives, we can expect to be suddenly single. Whether it’s through divorce or the death of a loved one, the costs can be huge both financially and emotionally.
If you haven’t always been the financially savvy one in your household, taking on the role when you’re single can be a huge burden. Regular conversations on this unfavourable topic are important to ensure you have adequate life insurance and have planned ahead, including your Will, estate planning, powers of attorney, etc.
Tip – get advice from a firm like ours who specialise in working with people who are faced with making significant financial decisions alone and often for the first time.
Visit our retirement planning section to learn more about our service.
If you would like to speak to us about unexpected retirement expenses, please feel free to give us a call on 02 9913 9995. We are located in Narrabeen on the Northern Beaches of Sydney.
Disclaimer: This publication has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions.
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