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The United States is facing a retirement crisis. Approximately 40% of American households have nothing saved for retirement, and 60% of those who do have savings are not on track to retire at their current standard of living. Now more than ever, it’s critical that seniors understand not only how to prepare for retirement, but what to expect once they’ve made it. We’ve written in the past about the unexpected financial responsibilities on retirees, but what about those expenses that many seniors don’t see coming?
Whether you’re already prepared for retirement or only now starting to think about how you can save enough for the retirement of your dreams, here’s a list of the top unexpected financial drains seniors face on the road to retirement and beyond.
- Sudden Illness
According to Fidelity Investments, medical expenses cost the average couple $245,000 over the course of retirement. While this isn’t exactly unexpected, many retirees assume that insurance and Medicare will cover their medical expenses. That might be partially true, but the onset of sudden illness can bring with it lots of additional costs, like in-home care, a residential healthcare facility, and more.
- 401(k) Cash Outs
A 401(k) “cash out” is what happens when someone makes an early withdrawal of their savings, which happens for a variety of reasons. Some people choose to cash out 401(k)s as they retire or move jobs. Many employers also cash people out as they leave, or transfer their money out of the company plan to individual retirement accounts (IRAs). But those IRAs are often designed to preserve money, not grow it, and it’s been shown that an IRA can eat up to $1,000 in savings over 30 years just with fees. Between those IRA fees and the taxes and penalties someone faces when making a withdrawal before retirement age, cash outs are the #1 cause of retirement savings “leakage.”
- Home Repairs
For those retirees who remain in their home after retirement, it can be easy to overlook the costs of keeping the house in shape. The One Percent Rule states that homeowners should budget to spend roughly 1% of the total value of their home per year. While some years’ repair bills might be lower than that, other years can bring huge repair bills for things like new air conditioning units or new roofs.
- Life Insurance Premiums
There are many circumstances in which a life insurance policy can put undue strain on a retirement budget. Premiums can simply become too expensive; a 20-year term policy for someone in their 60’s can bring with it premiums as high as $7,300 per year. Universal life policies can be even more expensive, regardless of age, because part of the premium is there to cover the investment portion of the policy. These high policies can simply be too costly to make room for other retirement expenses, or might be too high in relation to the benefit of the policy.
At Life Settlement Advisors, we assist financial advisors and seniors planning for retirement to help them explore a lesser-known option to handle these and other unexpected retirement drains: life settlements. In a life settlement, the owner of a life insurance policy can sell their policy to an investor, who pays the premiums and, in return, becomes the beneficiary of the policy. This arrangement can help seniors find extra room in their retirement budget they didn’t know they had, and for those who struggle with life insurance premiums, can turn a burden into a sudden windfall. Click here to learn more about life settlements and see if you qualify.
Case Study:
Virginia and Edward purchased a joint survivorship life insurance policy many years ago at the advice of their financial advisor due to their Federal estate tax liability. Virginia passed away a few years ago and with the changes in the Federal estate tax laws, the insurance is no longer needed.
Edward sold a portion of his policy for $195k and retained $100k of death benefit which he named his daughter as the beneficiary.
Leo LaGrotte
Life Settlement Advisors
317-863-5936
llagrotte@lsa-llc.com
www.lsa-llc.com
Download our resource, How to Plan for Healthcare Costs in Retirement, for more information on common age-related health issues, their costs, and how you can pay for the care you need.
