7 Financial Surprises Retirees Want to Avoid

Whether it’s for your career, a business initiative, or even relationship advice, gaining insights from those with experience can prove invaluable. The same holds true for retirement planning—especially when you consider that, according to the Global Atlantic Financial Group, more than half of retirees have regrets about the process.

While it’s impossible to plan for every scenario, a few common stumbling blocks often catch retirees by surprise. Consider the following gaffes in your planning to help better ensure you enjoy a comfortable and stress-free retirement.

Assuming minimal home repairs and renovations

Whether you want to remain in your current home as you get older or move into a different residence, you’re unlikely to avoid home repairs and/or renovations altogether.

Not saving or budgeting enough to cover such expenses is a common regret among retirees. Even a new home isn’t immune to accidents and weather damage homeowner’s insurance may not cover.

Also remember that most homes aren’t designed with old age in mind. Therefore, if you require wheelchair accessibility or need to expand a bathroom or convert existing space so key areas exist on one level, expenses can quickly add up.

No singular rule governs how much to set aside, especially since so many variables are at play—including the age of your home. However, a good rule of thumb is to earmark at least one percent of your home’s value every year. For example, if the value of your home is $500,000, aim to save at least $5,000 annually.

Downsizing didn’t help as much as you thought

While everyone has different reasons for downsizing their home later in life, many assume that doing so will help finance a good chunk of their retirement. Unfortunately, the reality is that homeowners often reap less than what they had originally anticipated while considering this plan. Consequently, some retirees are forced to make drastic changes to the retirement lifestyle they had envisioned.

If you plan on downsizing before or during retirement, consider taking the following steps to ensure your expectations are more closely aligned with reality.

Learning Medicare doesn’t cover long-term care

Many people incorrectly assume Medicare covers long-term care. The truth is that it doesn’t, except in very limited circumstances. Based on recent U.S. Department of Health and Human Services data, there is almost a 70% chance someone celebrating a 65th birthday today will need some form of long-term care (LTC) services in his or her remaining years. It’s therefore a prudent approach to begin planning.

Long-term care insurance policies typically cover out-of-pocket expenses that accompany home care, assisted living, and nursing homes: benefits not covered by Medicare or other public programs.

Ultimately, these policies offer a few key benefits. In addition to helping protect your savings, they also provide you with additional care choices. For example, even if you qualify for Medicaid, you’re still restricted to facilities that accept payments from the program.

Experts recommend you obtain a policy no later than your fifties so you can lock in a lower premium. Alternatively, you may be able to add a long-term care rider to your life insurance policy. Click here to read all about long-term care.

Overly supporting your children

A recent Bankrate study reports that half of parents with adult children are sacrificing—or have sacrificed—their own retirement savings to help their children financially.

Other studies conclude that over half of parents aged 60 and over have provided financial support to a child within the last year and over 75 percent of parents with adult children offer some sort of financial support.

With so many young adults staying in school longer, drowning in student loan debt, delaying marriage, and/or residing in their parents’ homes, this trend will likely continue for the foreseeable future.

While putting your children ahead of your retirement needs is noble, it’s important to understand associated financial impacts for your future and—although perhaps more difficult than it sounds—draw a line accordingly. Helping your kids establish and implement budgets and assigning them responsibility for specific expenses can help them gain financial independence.

Learning Medicare premiums are more expensive than you originally anticipated

If you think navigating the Medicare maze is confusing, you aren’t alone; and, if you’re like most, you’re likely not privy to Medicare surcharges and exactly how they work.

For 2023, surcharges (also called an “income-related monthly adjustment amount” or IRMAA) are triggered when your modified adjusted gross income exceeds $194,000 (for taxpayers who are married and file jointly) or $97,000 (for individual taxpayers).

The surcharge is calculated based on tax returns you reported from two years prior: meaning your 2023 income determines your IRMAA in 2025, your 2024 income determines your IRMAA in 2026, and so on.

For those unaware of IRMAA, the two-year lag can create unpleasant surprises when you first enroll in Medicare—especially if your income has declined substantially since you retired. IRMAA can also creep up later in life when you begin taking RMDs since the additional amount is reevaluated every year based on your previous two years of income. Therefore, make sure you plan for Medicare a few years before you enroll.

Keep in mind these surcharges are layered on top of your standard Original Medicare premiums for Part B and Part D coverage. In many cases, you will pay several hundred dollars more a month than you had originally planned.

In addition to surcharges, you’ll need to consider how to fill the gaps since Medicare doesn’t cover all health-related expenses—leaving you on the hook for deductibles, copays, and a host of other services spanning vision, dental, and hearing aids. This is where Medicare Advantage and Medigap policies come into play, though these programs aren’t free.

Not planning for a spouse’s death

The last thing you want to think about is losing your partner and pondering how life will go on without him/her. However, with some proper planning, you can avoid many common mistakes retirees encounter with respect to this (depressing) prospect.

At the most basic level, know your family’s finances and how to access them—ensuring you’re listed on all accounts as an owner or beneficiary. Otherwise, it’s not uncommon to see a surviving spouse struggle to even locate the family checkbook because his or her deceased spouse handled all the family finances. It’s just one less thing to worry about!

Also consider life insurance. A policy isn’t just critical during your working years; it’s also important during retirement. For example, if both spouses earn Social Security Income and then one passes away, one of two benefits will disappear—leaving an income gap in its wake. Fortunately, you can close this gap through life insurance so that the living spouse can maintain his or her current standard of living in the years to come.

Not realizing you may pay higher taxes during retirement

There are several reasons as to why you may pay higher taxes when you retire. One of the most common is due to your tax-deferred accounts: such as your 401(k) and traditional individual retirement accounts (IRAs).

Once you start drawing money down from these accounts while generating other retirement income such as Social Security benefits or rental property payments, you can easily find yourself in a higher tax bracket than when you were working.

The best way around this situation is to engage in pre-retirement tax planning so you can properly structure your retirement accounts.

In sum: actions to take before retirement

Planning for retirement is often a complicated and overwhelming process. There are so many factors to consider: including unexpected expenses in retirement, tax implications, and insurance. The good news is that you don’t need to go it alone; a qualified financial advisor can help guide and navigate you through the retirement planning process so the unexpected won’t curtail or derail your retirement dreams.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.