The 4 expenses retirees most underestimate, and how advisors can help

April 2, 2023 6:00 AM

Retirement is full of unexpectedly high expenses, from home repairs to transportation.

Marianne Nolte knew that caring for her mother-in-law would be expensive, especially after the 94-year-old moved into an assisted living center. But there was one expense that caught Nolte's family off guard.

"One of the things that's just killing us is she's incontinent," said Nolte, a certified financial planner and the CEO of Imagine Financial Services in Fallbrook, California. "She changes her diapers five, six, eight times a day. And that's not covered by insurance, so it's out of pocket, and it's a real expense that people don't even think about."

Adult diapers, which can cost up to $47 for a pack of 10, are just one of many healthcare costs that are not typically covered by insurance. And they're also an example of something else: the many surprise expenses that creep up during retirement.

Some higher costs are expected. It's common knowledge, for example, that healthcare expenses rise as one ages — the average 65-year-old couple will need $315,000 in savings to cover medical costs in retirement, according to one study by the financial giant Fidelity.

But there are also other, less well-known expenses that tend to jump up later in life that can overwhelm a retiree who isn't prepared for them. Sound financial advice can make these outlays more manageable. Here are some of the most common costs that sneak up on seniors and how financial advisors can help clients cover them.

The 'enjoy life' phase

The things seniors spend money on tend to evolve over the course of their retirement. Two expenses that tend to be much higher at the beginning, for example, are travel and restaurants.

"It is important to understand there will be various stages to retirement," Nolte said. "During the early retirement years, retirees are excited to get out and have adventures now that leisure time is available."

The financial services firm Capital Group found that 40% of retired baby boomers have spent more on travel than they expected to in their post-work years. And according to the Bureau of Labor Statistics, the average American aged 65 and older spends $1,993 per year on eating out.

"Many retirees will spend more on restaurants after retiring than they did while they were working because they have the time and energy to go out more and restaurants offer an escape from being stuck at home," said Ron Strobel, the founder of Retire Sensibly in Meridian, Idaho. "For some people, there's also less guilt about spending money on restaurant food once they have shifted from a savings mindset to an 'enjoy life' mindset."

How can wealth managers help? Nolte offers her clients many tips to make their journeys cheaper, such as opening a travel credit card that earns plenty of points for flights and hotels, or exchanging currency ahead of time to avoid fees. Most of all, she urges clients to budget generously for the pleasures that matter most to them — and then add a little more.

"Overfunding is a good idea right up front," Nolte said. "We all think that we're going to spend a certain amount of money, and we budget for a certain amount of money, but there's going to be extra expenses that are just going to catch people off-guard."

Home maintenance

Even if a retiree has already paid off their mortgage, they can still find themselves spending thousands on a home. A report by the Society of Actuaries, an Illinois-based professional association, found that the most common "shock" to retirement budgets was a major house repair or upgrade, with 28% of American retirees reporting this kind of expense.

"One of the biggest and most under-the-radar expenses in retirement is real estate renovations," said Noah Damsky, a chartered financial analyst and principal at Marina Wealth Advisors in Los Angeles. "I've seen countless clients redoing floors, bathrooms and kitchens in retirement. Now that they're spending a lot more time at home without the stresses of work to occupy their mind, it's easy to fixate on what could use a facelift in the house."

Even apart from renovations, seniors are sometimes forced to spend money on day-to-day maintenance. For an elderly homeowner, climbing a ladder to replace a lightbulb or shoveling snow out of the driveway can become unsafe, requiring outside help. Rather than paying someone to do odd jobs, Nolte steers her clients toward volunteer groups in the community.

"They may want to reach out to their church or a senior center in town," she said. "They can provide volunteers to come out and help with the light bulbs or fire alarm batteries that need to be changed. … Some of those little things can be helpful."

Transportation

Even if they're no longer working, retirees still have places to go — whether it's a doctor's appointment, the grocery store or a volunteer job. The costs of getting there can add up to more than seniors expect. The average American 65 or older spends $7,160 on transportation per year, according to the Bureau of Labor Statistics.

The specific costs depend on whether the retiree still drives or not. Those who do get behind the wheel are on the hook for gas, insurance and repairs. Those who don't may find themselves paying for cabs, buses and other public transportation.

"You may think that you're going to drive until you're 95, and you have a stroke when you're 75 and you can't drive," Nolte said. "You just can't plan for that."

Financial advisors, she said, can help not only by budgeting for these expenses, but by suggesting alternative solutions. Instead of driving to the supermarket, for example, a volunteer at the local senior center or a "runner" at the store itself might be able to deliver the groceries.

"It's the place of the advisor to be a resource," Nolte said. "How can we get more out of your community that is going to help you in these years?"