These Three “Money Traps” Can Catch You by Surprise in Retirement – and Could Even Drain Your Savings
We’ve read an untold number of articles warning retirees about the financial pressures they’ll be facing as they grow older. We’ve read endless alerts about the perils of inflation. We’ve seen dozens of articles explaining how many hundreds of thousands of dollars the average senior is going to end up paying for health care. From the cost of gasoline to the cost of food to the cost of rent, the financial pressures on retirees can appear relentless.
“No worries,” we can hear you saying. “My financial planner and I have taken all those concerns into account.” Fair enough – but before you get too complacent, we encourage you to take a look at this recent article from MarketWatch in which reporter Morey Stettner writes about three unexpected costs that can sneak up on many retirees, in some cases upending even a carefully crafted budget. We found Stettner’s article interesting reading.
Baby Boomers Have Heard the Warnings
As the MarketWatch article accurately says, today’s baby boomers – many approaching their retirement, if not there already – have heard the warning cry about retirement-related costs: “It’s more expensive than you think!” Those who are more disciplined about saving and more intelligent about planning have taken the warning seriously.
“There’s the looming threat of uncovered healthcare costs and years of hefty long-term care bills,” Stettner writes. “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.’” Nevertheless, the article adds, “even the most diligent, knowledgeable retirees can fall into money traps,” facing unanticipated expenses that disrupt even the best-laid plans.
In his article, Stettner lists three of these “money traps.” Let’s take a look.
Money Trap #1: the High Cost of Living Longer
This is an intriguing conundrum, we think. Seniors are not only living longer, they’re living healthier, getting out and doing more than their forebears. These extended years of active living can translate into more spending than you may have bargained for.
“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, etcetera,” Stettner writes. “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.”
Stettner quotes Atlanta-based financial planner Sidney Divine who “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,” says Stettner. “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.” The solution as we see it: careful budgeting using a financial dashboard to help you plan for any and every contingency.
Money Trap #2: the High Cost of “One More Move”
“Retirees tend to think, ‘I’ll make one last move into a place where I see myself growing old,’” Stettner writes. “So, they move to that place. And then they keep moving.” This restless tendency can wreak havoc on a financial plan. That’s because, as the article puts it, 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).” There are also closing costs and related real estate fees to consider. Plus, moving too quickly can make it tough to build up much home equity.
As one planner told MarketWatch, some retirees think they’ve settled in their permanent location only to find that their needs, circumstances and preferences have changed. You may move to be close to family, only to have a job change cause them to relocate. Often, retirees decide to have two homes, one for summer and one for winter, only to find that the added burden of taxes, upkeep, and hidden fees like HOA dues are too much to bear.
Here again, our advice includes developing a customized financial dashboard. With this tool you can plug in the numbers and make a better decision about where and how to live.
Money Trap #3: Guilt-Induced Charitable Impulses
Sometimes, MarketWatch suggests, generosity can get well-meaning retirees into a financial bind. “In budgeting for your retirement years,” writes Stettner, “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.” In our experience, retirees who volunteer or who serve on charitable boards often step up their giving, perhaps more than they ever anticipated.
“You might feel compelled to give away a bigger portion of your nest egg than you initially intended,” says the article. “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.” The MarketWatch article doesn’t mention family needs, but often the circumstances of those closest to us might be the trigger that prompts us to step up and help, spending more than we should in the process.
We’re big believers in philanthropy and in following your charitable impulses. But before you make a big financial commitment, a thorough review with your financial adviser is clearly in order. Giving is wonderful, but giving more than you can afford could put your own financial health in jeopardy.
My Life, My Plan, My Way: Get Started on the Path to Retirement Success
At AgingOptions we believe the key to a secure retirement is the right retirement plan – yet statistics show that 70 percent of retirement plans fail. That’s why for nearly two decades we’ve been dedicated to the proposition that a carefully-crafted, fully comprehensive retirement plan is the best answer to virtually any contingency life may throw your way as you age. Our slogan says it all: My Life, My Plan, My Way.
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(originally reported at www.marketwatch.com)