Retirement Expenses For Which You Forgot To Plan

Well, hello and welcome in to Mr. Stillman's Opus. I am Ben George.

He's John Stillman. He is a Chartered Retirement Planning Counselor at Rosewood Wealth Management. We got a good show for you today, retirement expenses that you might overlook with your plan and people often do overlook these today.

We want to make sure you know or are aware of them and also why you need to strategize for these and factor these into your plan. So should be a good show today. John, welcome in. What's going on on the farm today? Just trying to get the seedlings going.

It's that time of year. So I can't ever get pepper seeds to sprout like they should. So if anybody has any tips on pepper seedlings, let me know. Everything else does fine. But the peppers, I think I just can't keep the soil hot enough in the the planters.

Interesting. I'm not aware of hot soil, so it's all kind of new to me. I usually just buy them from, you know, a local. Well, let's say a local, maybe even Lowe's or Home Depot, but a local place and then also just on the back porch and they usually grow pretty well during the course of the year. That's what I usually have to do is get the already started plants.

But I really want to do my own from scratch. How are the fruit trees these days? The trees themselves are fine. The squirrels just take every bit of fruit that ever grows on them. But I have really taken it upon myself to become the the pole pot of the local squirrel population. Well done.

I can envision that. Let's talk a little bit retirement expenses today on the show. And if you have questions again, feel free to reach out. Start that conversation with John eight hundred five four five two nine nine one.

You can call or text that number if you choose. But these retirement expenses today are things that people will often overlook if they're not working with an advisor to go through their full plan, comprehensive look at their future. And we'll start medical expenses. This is clearly one of the biggest ones that are out there, John, because we all we know to factor in medical expenses. We know we're going to need health care, but this continues to outpace everything, even this high inflation environment we're in. And the other part of it is we just don't know what we're going to need in retirement to take care of ourselves, how much health care we're going to need. So how do you help somebody factor in this expense when it's very easy to overlook how much you're truly going to need?

Yep. So the first thing that people have to understand is that Medicare just doesn't cover everything. And even if you have a good Medicare supplement, which we certainly advise people to have in place, that's going to cover your deductibles and your co-pays. If you have to stay in the hospital for a few days or anything like that, it certainly will help those big out-of-pocket things. But that's only for stuff that Medicare covers.

If Medicare doesn't cover it, like your trip to the chiropractor or that dental work or hearing aids, things like that, if Medicare doesn't cover it, the supplement doesn't matter. So you're paying out of pocket for all that stuff. I have a client who about a month ago got a new tooth for like $4,500.

Dental implants are not cheap. So the average is that somebody retiring now is going to spend between $200,000 and $250,000 on medical-related expenses during retirement. Now that sounds like an absurd amount, but we could be talking about over the course of 30 years they spend that much. But that's still $8,000 to $10,000 a year that on average you're going to spend on that stuff.

Now a lot of it might come later on in life, that's true. But we want to make sure, the bottom line is we want to make sure that you have these things covered. And it doesn't mean that we have to have an insurance solution or a couple hundred thousand dollars sitting here off to the side in an account labeled specifically for medical.

But we need to have a plan somehow. We need to be able to increase your cash flow as needed in a particular year if you have an expense like this. Or you know maybe we're far enough out from retirement. If you're 50 and you have access to an HSA, retirement savings account, that you can max out every year and never touch it for medical expenses while you're still working.

If you can still pay out of pocket for all of your medical expenses now and max out an HSA from now until you retire, well there's a good chance that all that money that you have in the HSA, once you walk away from the job, you might have enough in there to cover your medical expenses for the rest of your life. And all that money comes out tax-free if you used for legitimate medical needs. So there's a lot of things we can do if we can start the planning process far enough out in advance. Travel's another spot in retirement. We all we know like hey we're gonna travel and people often think well I've got travel covered I want to visit this place and this place I'm gonna do this. But beyond that there's often some unexpected travel that pops up in retirement that you don't think about, you don't plan for, but as we know travel can really eat into a budget quickly. So I think a lot of people think about the trip to Europe or the trip to Egypt or you know wherever it is that you want to go and you know it's gonna be a big dollar trip, big ticket item and you're gonna save for it and you're gonna plan for it. What people tend to not factor in is well my granddaughter is having a destination wedding in Turks and Caicos and now I have to pay my way there.

Or you know maybe sister has cancer and you need to go stay with your sister for a while while she goes through chemo. Things like that can cost you a lot of money but it's not a planned expense necessarily. It's not something you go into retirement saying I'm gonna put money aside for this trip to Wyoming to take care of my sister.

I actually have some clients who they're retired, their daughter tragically died about a year ago and they went out for about a month and a half to be with their three granddaughters who had just lost their mom. Well of course there's expense related in that, the travel to get out there, the travel staying in a hotel while they were there, the cost of having somebody take care of things at home while they were gone. So those costs can really add up and again they're unexpected. You can't plan for them so we have to have a way to address these unexpected expenses as they come up.

Yeah that's a tough story but it's a great example of some things you just don't think about or don't prepare for that could pop up in retirement. Another of which you talk about you know providing assistance for family and that's kind of our next thing here and this is you know could go both ways both parents and children. We're in this time where there's a lot of retirees that fall into the sandwich generation that have to take care of their parents and also have to support children to get out of college and you haven't found their footing yet in the real world and need financial support there. So oftentimes you're taking care of multiple generations. One of the first questions that I ask people when they come in to visit, I mean this is always something we cover the first time we're together, is if their parents are still living what do you know about your parents financial situation? And sometimes they don't really know but they seem to think their parents are in pretty good shape and usually they think that I'm asking for you know knowledge about inheritance.

That's not why I'm asking. I'm asking because I want to know if there's any financial liability for you taking care of them down the road. And so sometimes it actually spurs people to go have that conversation with mom and dad of hey you know we've never talked about your financial situation like are you all going to be okay?

Are you going to be relying on us for anything? A lot of times it's yes the parents might be relying on them but that's more for actual physical help not I need you to kick in financially to help take care of us. So it's just one of those things where we need to have the conversation and families need to have those conversations just so we know what to expect. You mentioned the sandwich generation that's the people who are taking care of mom and dad while at the same time the kids aren't completely off the payroll yet. We do see that a lot kids in their mid 20s late 20s in some cases early 30s that really just haven't gotten going in the working world yet. And so mom and dad are still supplementing with some living expenses here maybe helping out with student loans or whatever. Again nothing wrong with that necessarily I mean it certainly can become an issue I think in some cases where you get to the point where you're almost crippling your kids by not forcing them to go fly on their own. But you know sometimes like look they have a particular career in mind we want to help them achieve that dream and we'll do what we need to do to help them get through the steps until they get there which is okay we just need to have a plan for okay well how do we wind this down? How do we eventually get them off the payroll so that we know by year X you can redeploy that money into saving more for yourself or maybe that's when you're then able to retire is when they're completely off the payroll.

So again just conversations that families need to have and a lot of families just don't communicate about it very well at all. All right couple more here on our list retirement expenses that many people forget to plan for taxes are next and again this kind of falls in that like travel category where you know you're gonna have to pay for taxes or I guess I guess I shouldn't assume that everybody knows taxes will have to be paid in retirement on a lot of different items of their income. But beyond that is the future potential of a tax hike which we are in line for at this point right? Well so if you think about how a tax increase is going to affect your income in the first year like if you keep your withhold if tax rates go up but you keep all of your withholdings exactly the same on all of your income streams then yeah you're gonna end up with a tax bill at the end of the year. However most people are going to change their withholdings so that a little bit more is being withheld from their pension or their social security or their IRA withdrawals a little bit more is going to be withheld every month and you don't notice at the end of the year that you have this big tax bill to pay but you did pay it over the course of the year. So what it did was it decreased your take-home pay your decreased your retirement paychecks throughout the year.

Now for some people they have enough buffer in their spending where you know losing a hundred or two hundred dollars a month may not be that noticeable to them but if you're living on four thousand dollars a month and you really don't spend on anything other than the basic necessities and now your income is decreasing by a couple hundred dollars a month that might be harder to absorb because you just don't have that much wiggle room in the budget. So we need to know of all the income streams you have coming in in retirement how susceptible are each of them to a tax increase like if it's IRAs are the overwhelming majority of your retirement income well all that money is going to be taxed as ordinary income when you take it out of the IRA. So if tax rates go up every penny of that is going to be taxed more. So we just have to be aware of how susceptible you are to a tax increase and then can you absorb that if it does happen. And to your point Ben you said we're in line for a tax increase.

Yeah I mean the tax brackets used to be the 15% bracket the 25% bracket the 28% bracket and back in 2017 they lowered them to you know 15 went down to 12 25 went down to 22 28 went down to 24. Well they're going to go back up here in a couple of years they're going to go back up to where they were. So like Congress doesn't even have to do anything for them to go back up. Congress would actually have to actively extend the current rates in order for the current rates to say. So I can't imagine they're going to do that.

We already have a built-in increase coming not to mention any future legislation that would increase them even more than that. Okay a couple more Jon maintenance and repair you know we know that oftentimes these things pop up in multiples right new roof new HVAC your car needs a couple major repairs to it but you know you oftentimes you don't factor in having to do each of these things so again how do you get a jump on each of these items. Yep so again it's the kind of thing where we don't know necessarily which year these things are going to happen but they're going to happen eventually.

If you have a car that's seven years old the day that you retire you're not going to drive that car for the rest of your life more than likely and if you have a HVAC system that's 10 years old the day you're retiring it's not going to last the rest of your life it's eventually going to have to get replaced. So while we don't know exactly when we know it's going to happen at some point. So we just have to have a fund that covers these major expenses and that's different from your emergency fund. Now it might be that if you have a leak in the roof and you have to get the roof replaced all right well we might pull from the emergency fund initially to get it done but then we have to replace the money that we took out of the emergency fund for the next emergency that comes by. So we have to have a place to pull from and again it there's not a right or wrong way to do it necessarily it just has to be something that we've factored into the plan.

So all of this stuff is good examples of things that people just often don't think about. Our final one is one that maybe people are planning for a little bit more than they did say three or four years ago but inflation is absolutely an expense we're gonna have to account for in retirement right. I know people realize that at this point but even when you don't see the high inflation rates that we've seen here recently still in the background always right. So we always built in a prediction of three percent inflation every year to everybody's income plan. We need to plan to increase your income by three percent every year in retirement because you know historically if you look at a long enough time period 30 years or 40 years it's almost always going to average out the three percent inflation. Now for people that retired in 2016 they didn't for several years of retirement didn't need to increase their income because inflation was not non-existent but it was pretty close there was not a lot of inflation going on for several years so we were running well under the three percent average. Well then guess what happens last year 2021 2022 much higher seven eight percent inflation which is jarring when it happens obviously like that in one year but it was really just averaging out all of these years where we didn't have much of it. So for everybody where we were planning on three percent increase of their income every year well we actually just didn't increase the income for several years and then we're taking out more and so it all averaged out just fine. Again the problem lies in you not planning for inflation and just going into retirement saying well you know I'll get a cost of living adjustment on my social security or they'll increase my pension as inflation goes up. Yeah those things do get increased but very rarely are you getting raises on those income streams that are actually equivalent to what inflation actually is. So that means we're going to have to increase your other income streams by that much more if we're going to keep your buying power the same. Again I think people are aware of inflation they know it exists just don't really have a way to accurately mathematically plan for it so that's one of the things we really make sure that you have incorporated in your plan.

Right well as you can see there's a reason why you work with an advisor someone that can go through each of these and make sure you have accounted for all these expenses and they've got a way to take care of them when they pop up if they pop up not all of them are guaranteed but in many cases you will come across these expenses so you need to have a way to account for those. So if you have questions for John as always log on rosewoodwealthmanagement.com that is the website or you can call or text the number 800-545-2991. As always John a pleasure to catch up with you good luck with the seedlings I hope maybe a fruitful crop of peppers that you can drop by the office sometimes. Yes sir you'll be the first on the list for a jar of salsa. Absolutely well thank you for listening to Mr. Stillman's Opus for John Stillman over at Rosewood Wealth I am Ben George have a good week.