To ensure you don’t run out of money, planning for your retirement requires a great deal of foresight. Some of your expenses are easy to plan for, but there are others that you simply can’t predict.
That means that you will always need to leave a little bit of room in your planning budget for the unexpected expenses that will occur throughout your retirement.
Here are the five most common unexpected expenses.
Helping family members
Whether it is your children, your grandchildren or your parents, at some point in your golden years you are probably going to be called on to help in some financial sense. Life events like wedding, the birth of children, divorces or health issues are impossible to predict, but they will almost certainly happen at some point. You don’t want to fall into the trap of constantly bailing out your kids or you will find your nest egg whittled away very quickly, but you will need to have an allowance for some major life events that may require your assistance.
You may feel as fit as a Mallee bull now, but it won’t stay that way forever. The latest report from the Productivity Commission explains that while Australians have high life expectancy, they also have the highest number of years spent in ill-health compared with other OECD countries. Many Australians have, or are at risk from, chronic conditions such as mental illness, diabetes, lung cancer and cardiovascular disease, and we have one of the highest obesity rates in the world, one that appears to be increasing. One of the most basic and important uses of finance in retirement is to be able to pay your medical costs and potentially afford aged care, if required.
At the other end of the spectrum, you don’t know how long you are going to live in retirement, either. Australians do have a high life expectancy; in fact, a couple aged 65 has a 50 per cent chance that at least one of them will survive until they are aged 95 or over. The possibility of outliving your retirement savings is a very real prospect for many, with financial advisers now suggesting you could live at least five years longer than the statistical average.
Death of a loved one
While not entirely unexpected, most people prefer not to think about the point in their life when they will suddenly become single. As well as the emotional costs there are significant financial costs and it pays to be a little bit prepared for this eventuality. If only one of you looks after the finances, it is worth changing that arrangement in retirement, and work together as a team. Regular conversations on this taboo topic are important to ensure you have adequate life insurance and have planned ahead, including your will, estate planning, powers of attorney, etc.
We know prices are forever rising, but the rate at which they increase is anyone’s guess. Power prices have been a good example in recent years, but there will always be some expense that rises at a rate much faster than predicted. This can present significant challenges when trying to work out your cost of living year on year. When you are working, the rises in inflation are offset by potential pay increases, but you rarely have that luxury in retirement, with the indexation of the Age Pension offering little respite.
What unexpected expenses have cropped up since you retired? What tips would you offer our readers when planning your retirement?