By Nicholas Hamner
Investment Advisor Representative & Director of Marketing
[email protected]
Last Thursday night saw one doozy of a storm. In Bucks County, where I live, the weather moved in and out in under 45 minutes but left a wave of destruction and power outages behind it whose effects are still being felt. My neighborhood went a day without electricity… which would have been fine if I had remembered I owned a generator in the first hour of the blackout instead of the next afternoon. One house on the street behind me had its water line ripped up and a car crushed by two 70-year-old oaks that were blown over—root ball and all—by the storm. Throughout the area, folks were dealing with blocked roads, damaged homes, no A/C, and… worse… no Internet. Hopefully everyone reading made it through the storm OK and the worst thing any of you had to deal with was eating an unplanned fast-food dinner in the dark on Thursday night. My power cut out halfway through my cooking a stir fry, so I dodged branches and puddles to get over to Taco Bell. Silver linings and all…
The consensus is that storms like this are going to happen more often as the Earth’s weather patterns change, and insurance companies are adjusting in response. Every six months, I get a new letter from my homeowner’s insurance listing all the new things they no longer cover… incidentally, the last one listed all the different types of tree damage they no longer cover. Home insurers in Florida, California, and other weather hot spots are pulling out entirely. Ecological implications aside, the big takeaway is that homeowners are going to be responsible for more repairs that insurance used to cover which means you should start factoring that into your retirement planning.
Handling Unplanned Expenses In Retirement
Planned expenses are easy to account for in retirement. You know generally how much your power bill is, how much your water & sewer bill will be, and how much… again, generally… you eat and spend on groceries each month. It’s the unplanned expenses that can be a retirement plan killer! As a man of some importance once said, “There are known knowns, known unknowns, and unknown unknowns.” You can plan for the things you know about, you can sort-of plan for the things you know you don’t know, but you cannot plan for the things you don’t know that you don’t know.
A fully planned, holistic retirement plan should account for all potential future expenses, so that you don’t find yourself open to taxes and penalties on unplanned withdrawals. So while you never hope that a tree falls on your house and wrecks your roof, only to be told to pound sand by your homeowner’s insurer, you should at least plan on having some unexpected home repairs over the course of your retirement.
Common Unplanned & Underestimated Expenses In Retirement
The AARP put a list together back in 2023 of the ten most common unplanned and underestimated expenses. How many of them are you accounting for?
- Health Care and Wellness – As of 2023, the cost of healthcare was rising faster than inflation and the average retiree could expect to spend $165,000 on health & wellness in their retirement years.
- Home Maintenance and Modifications – Even if your home remains safe from trees and storms and you plan on changing nothing, maybe your knees go and you have to redo your bathroom to account for walk-in tubs and grab bars, or you swap out floors and rugs for a single run of carpet to alleviate your fall risks.
- Home and Car Insurance – We already talked about insurance costs rising in the face of a changing planet.
- Travel – You may not travel much, or you may budget correctly for all your planned travel. But then a granddaughter decides to get married in Venice, or you get sick while vacationing in the Caribbean and have to fly home early. An unplanned change can wreak havoc on a properly budgeted vacation.
- Transportation – The cost of car ownership increases every year. Remember when used cars were cheap?! Not to mention, the time we all have left to safely operate a private vehicle is decreasing daily. Does your retirement plan account for a new car being double what you paid for the last one? Does it account for Ubers, cabs, and bus fare?
6., 7., 8., 9., and 10 are Utilities, Kids & Grandkids, Taxes, Moving, and Entertainment, respectively. Each one is self-explanatory and also reinforces the idea that budgeting for things only gets you so far and that there will be unexpected expenses and price increases that you need to plan for ahead of time.
None of this is fun to think about and I get it. We are, as a people, prone to superstition. There’s this idea floating around in the back of all our heads that planning for something… anything… in some small way increases the chances that it will happen. The law of attraction spun on its head, wishing ill will, or—as the religious books say—speaking it into existence. To that end, I want to point out that no one has ever blamed a car accident on their having bought insurance. And to take that idea further, I’ve owned a “Corvette Parking Only” sign since I was 18 and the fastest thing I’ve ever had in my driveway is a 35 lb. dog who realized her leash fell off.
If you’ve worked with us for any amount of time, you know how detailed we can get on how much you spend and how much you should plan on spending. Our Expense Calculation Worksheet was exhaustive when I started nearly 11 years ago, and it has only grown since then. But as exhaustive and comprehensive as it is, and the fact that we make everyone complete it, I can say with some certainty that most clients still underestimate their spending. (Why? Because nobody… nobody… wants to come to terms with just how much they spend on meals out.)
Planning for the unknown unknowns, the known unknowns, and the knowns of retirement expenses requires constant vigilance and persistence. When’s the last time you looked at your plan?