The biggest expenses retirees often overlook: planning for unexpected costs

Health care consistently ranks as the biggest expense for retirees. As individuals age, medical costs tend to increase, with expenses such as Medicare premiums, supplemental insurance, out-of-pocket expenses and costs for prescription drugs adding up quickly. Long-term care which is not covered by Medicare, can also become a significant financial burden. These health care costs can consume a large portion of a retiree's budget, especially if they face chronic health issues or require specialized or ongoing medical care.

Discretionary expenses in retirement refer to the non-essential expenditures that can enhance a retiree's lifestyle. These typically include:

• Travel. Many retirees dream of traveling. Whether it's domestic trips or international adventures, travel can be a substantial part of retirement spending.
• Hobbies and recreation. Costs associated with hobbies, leisure activities or new pursuits such as golf, art classes, or other hobbies.
• Dining and entertainment. Expenses incurred from dining out, attending concerts, movies, theater shows and related activities.
• Gifts and contributions. Money spent on gifts for family members or donations to charities

While these expenses are not necessary for basic living, they are important for maintaining a high quality of life and therefore, should be included in retirement planning.

The amount that the average retired person lives on per month can vary widely based on their lifestyle, location and personal circumstances. According to data from the Bureau of Labor Statistics, the average expenditure for households run by someone 65 or older is around $3,800 per month. However, this figure can fluctuate based on factors such as housing costs, health care expenses and the level of discretionary spending. It is important for individuals to calculate their expected retirement expenses based on their unique retirement plans and financial situation.

Annuities can be a valuable tool for retirees looking to manage unexpected costs in retirement. An annuity is an insurance product that provides a steady stream of income in retirement, which can help cover both essential and discretionary expenses. Here's how annuities can help retirees plan for unexpected costs:

• Guaranteed income. Annuities can provide a guaranteed source of income for life, which can help cover essential expenses like housing, food and health care. This can provide peace of mind and financial stability, even in the face of unexpected costs.
• Inflation protection. Some annuities offer inflation protection, which means that the income payments will increase over time to keep pace with the rising cost of living. This can be especially important for retirees who are concerned about the impact of inflation on their retirement savings.
• Long-term care benefits. Some annuities offer long-term care benefits, which can help cover the costs of nursing home care or in-home care if needed. This can be a valuable benefit for retirees who are concerned about the potential impact of long-term care costs on their retirement savings.
• Death benefits. Some annuities offer death benefits which can provide financial protection for a retiree's spouse or beneficiaries in the event of the retiree's death. This can help ensure that loved ones are not burdened with unexpected expenses or financial hardship. It's important to note that annuities are complex financial products and may not be suitable for everyone. Retirees should carefully consider their financial situation and retirement goals before purchasing an annuity and should consult with a financial professional to determine if an annuity is the right choice for them.

Running out of money is a significant concern for many retirees, especially with increasing life expectancies. If retirees find themselves in this predicament, there are several strategies they might consider:

• Downsizing. Selling a larger home and moving to a smaller, less expensive property can reduce living costs and potentially free up equity.
• Part-time work. Some retirees choose to work part-time to supplement their income. Jobs in retail, consulting or other flexible roles can provide financial relief.
• Reverse mortgages. For homeowners, a reverse mortgage allows them to convert part of the equity in their home into cash.
• Seeking assistance. Government programs like Supplemental Security Income (SSI), Medicaid or other social services can provide financial support for those in dire need.
• Adjusting lifestyle. Reducing discretionary spending, cutting unnecessary expenses and living a more frugal lifestyle can also help make funds last longer.

While retirement should be a time for relaxation and enjoyment, financial woes due to unexpected expenses can cast a shadow over this phase of life. By being aware of the potential overlooked retirement costs and planning accordingly, retirees can avoid common retirement planning mistakes and ensure a secure and fulfilling retirement. Annuities can play an important role in this planning process, providing guaranteed income, inflation protection, long-term care benefits and death benefits that can help retirees manage unexpected costs and protect their financial future. As with any financial decision, it's important to carefully consider the options and consult with a trusted financial professional before making a choice. With proper planning and preparation, retirees can enjoy their golden years with confidence and peace of mind.