In 2017, the Society of Actuaries put together a survey of retirees, reporting unforeseen expenses that had hit them in retirement.
Nineteen percent of retirees said they experienced four or more financial surprises. Twenty-four percent of retired widows said that they had also been through these downfalls. The top unexpected expenses included:
- • Major home repairs or upgrades -28%
- • Major dental expenses - 24%
- • Significant out-of-pocket medical prescription bills - 20%
- • Drop in value of home of 25% or more - 16%
- • Illness or disability - 15%
- • Running out of assets - 15%
- • Sudden loss in total value of savings of 25% or more - 14%
- • Going on Medicaid - 14%
- • Family emergency - 9%
- • Sudden loss in total value of savings of 10% or more - 9%
While these generally happen with low frequency, shocks like long-term care, longer-term support of adult children, and divorce were the most troublesome to rebound from. Having an adequate emergency fund will always help. Those with strategies in place for healthcare, including Medicare supplemental insurance, tended to reduce their overall health spending. They also tended to be in better fiscal health than those without.
One possible solution for the long-term care dilemma is to buy a life insurance policy with accelerated benefit riders, which can pay out proceeds if the retiree needs long-term care support or becomes disabled. Retirees may still access the cash value in the policy to pay for other expenses, and loved ones will also get the death benefit after they pass away.
While health spending is a major unexpected cost, those with Medicare Parts B and D coverage coupled with a supplemental plan were able to cover their medical bills fairly well, although the premiums costs for these policies could be high.
Overall, retirees have been surprisingly resilient when it comes to unexpected adverse financial circumstances. Three in four experiencing major financial shocks have been able to adjust to their new circumstances, in spite of many of them suffering a loss of assets of 25% or more.
Consult your financial advisor for how you can prepare for major financial shocks that you could face during retirement.