According to the Bureau of Labor Statistics (BLS), the average person age 65 and older spends $52,141 a year, or $4,345 a month. Breaking this down further, 65 to 74 year olds spend $56,435 per year ($4,703 per month), while those 75 and older spend close to $45,820 per year ($3,818 per month). This is based on data from 2021, the most recent data available, so the numbers may have increased.
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But no matter what age you retire, it’s important to be prepared for the unexpected. This is especially true when it comes to your finances. After all, costs continue to rise, and even the most prepared individuals can be hit with costs they never planned for.
To get a better idea of the realities many Americans face after retirement and how to best prepare for them, GOBankingRates spoke with Scott DePeralta, who retired early but now serves as president of Scott DePeralta Consulting, LLC.
Here’s what he says have been his biggest unexpected retirement costs to date.
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Home Maintenance and Health Care
When I retired, I ran into some unexpected expenses that significantly impacted my lifestyle and retirement budget, DePeralta said. The two big ones were home maintenance and health care.
The cost of home maintenance varies greatly. According to State Farm, however, it’s best to budget between 1% and 4% of your home’s value for annual maintenance costs. In the US, the median home sales price is $492,300. For a home valued at this amount, that means you should expect to spend anywhere from $4,923 to $19,692 per year on maintenance.
And when it comes to health care, it’s no secret that people in the United States have one of the highest financial burdens. According to CMS.gov, the average person spent about $13,493 on health-related costs in 2022, a 4.1% increase from 2021. Costs continue to rise as well, making it more difficult to plan for these expenses.
Of course, everyone’s situation is different. Here’s what DePeralta had to say about the unexpected expenses he’s had to deal with since retiring.
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Medical bills and prescription expenses
A big area was health care-related costs, especially medical bills and prescription costs, DePeralta said. The need for certain medications and treatments ended up costing me about $500 a month, which was more than I had originally budgeted for. This forced me to adjust my financial plan and allocate more funds to health care, affecting the discretionary income available for leisure activities or travel.
DePeralta’s story is not atypical either. Even individuals who qualify for Medicare must pay some out-of-pocket costs.
For example, the average premium for Medicare Part B is $174.70 per month. The exact cost depends on the income of individuals. Medicare enrollees also must pay an annual deductible of $240 and a co-pay of $1,632 each time they are hospitalized under Medicare Part A.
The cost of other services, such as treatments, preventive care, and medication, vary widely based on the health care plan, whether the service is out-of-network, and individual needs. However, the average out-of-pocket cost of prescription drugs for adults of any age is $177 more per year for those age 65 and older.
New roof and HVAC system replacements
The other big expense DePeraltas has been hit with in retirement is related to his home.
The maintenance and repairs of the house also took me by surprise, he said. The need for a new roof and HVAC system repairs proved to be significant costs, totaling about $3,000 for the roof and $1,500 for HVAC repairs.
These unexpected expenses have directly affected his retirement budget. I had to reallocate funds from other areas to cover these essential home repairs, ultimately affecting the overall financial flexibility of my retirement style, he said.
If you’re also a homeowner, chances are you’ll end up facing similar costs throughout your life and well into retirement. Even if you’ve paid off your mortgage, something many financial experts recommend doing before you retire, you’ll still need to consider things like utilities, insurance, taxes and repairs.
Some things, like property taxes, can go up based on factors like the perceived market value of your home. Homeowners insurance premiums can also increase due to inflation or based on other external factors such as environmental disasters or severe weather changes.
As for general repairs and maintenance, costs vary based on location, the age of your homes, your appliances, square footage, and more.
Preparing for these expenses is key
Unexpected expenses in retirement, especially in health care and home maintenance, can have a profound effect on one’s financial plan and lifestyle, DePeralta said.
By anticipating and preparing for these expenses as much as possible in advance, it is easier to achieve peace of mind and much-needed financial security during retirement.
Given that your exact costs will be unique to you, here are some other common but mostly unexpected expenses that many retirees face and how to prepare for them:
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Long-term care: According to the US Department of Health and Human Services, about 70% of people who are 65 and older will need long-term care for at least 3 years. The typical cost of a private room in a nursing home facility is $116,800 per year. Home care costs $68,640 to $75,504 a year, depending on what you need. You can purchase a long-term care policy to offset these costs.
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Shipping: If you have a car, account for maintenance, fuel, insurance and depreciation. One way to combat this cost is to use public transportation or, if that’s not possible, get a vehicle with low overall costs and a high safety and reliability rating.
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Emergencies: Life happens. If you have a grown child who needs your help, a spouse who dies and potentially reduces your retirement income, or something else, the costs can add up. Some ways to protect yourself include buying life insurance, investing in tax-advantaged retirement funds, and building passive income streams.
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This article originally appeared on GOBankingRates.com: 2 Unanticipated Expenses I’ve Hit in Retirement
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