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Retirement's hidden costs

Some expenses never make it into our retirement calculations. How to plan for curve balls.

By MSN Money Partner Oct 27, 2011 11:48AM

This post comes from Glenn Ruffenach at partner site SmartMoney.


SmartMoney on MSN MoneyWhen I was a freshman in college, I took boxing classes. (It's a long story.) One fight, in particular, stands out in my memory: A right hook I never saw coming left me flat on my back. (It's fair to say I was no Mike Tyson in the ring. More of a Mr. Rogers. But I digress.)


The point here is that the punches you fail to anticipate are the ones that can do the most damage. That's also true when it comes to retirement: The taxes, fees and outlays that catch you flat-footed are the ones that can jeopardize your financial future.


Fortunately, there are steps you can take to keep from landing on the canvas, even in a shaky economy.


Start by recognizing the risks. (And more people are: In a recent Charles Schwab study, baby boomers said their biggest retirement-related concern was "unexpected expenses," such as medical costs.) If you're forced to make big withdrawals from savings in the teeth of a bear market, especially in the early years of retirement, your nest egg could expire before you do. You also have a good chance of living well into your 80s, and even your 90s. The upshot: more years with more bills (both planned and unplanned).


Ray Falkenberg, 68, uses the term "stealth expenses." "I was pretty naive when I retired 10 years ago," he told me recently from his home in Fresno, Calif. "There are a lot of hidden costs in retirement that people don't recognize." Here are a few big ones:


Replacement costs. Eileen Sharkey, chairwoman of Sharkey, Howes & Javer, a financial-planning firm in Denver, says clients often buy a new car just before retiring, thinking that vehicle will see them through their final years. Her reply: There's a good chance you'll live long enough to buy several new cars.


Big-ticket buys -- a new furnace, updated appliances, a fresh coat of house paint -- can put sizable dents in your nest egg. But most people don't consider that such significant outlays can follow them into later life or that such costs can continue to add up for decades. Says Sharkey, "Many people still underestimate their life expectancy, when, in fact, the 85-plus population is the fastest-growing in the country."


Relatives in need. You might already be feeling a financial pinch in caring for aging parents. But younger generations will likely come knocking on your door as well: an adult child who gets laid off or divorced, perhaps, or a grandchild who needs help with tuition. "I'm not sure I know any retiree in my age bracket that hasn't experienced the need to provide some funds to parents or adult children," says Henry "Bud" Hebeler, 78, who runs, a retirement-planning site.


Required distributions. Most people know that after reaching age 70½, they must begin withdrawing funds from tax-deferred accounts (like IRAs). What they fail to understand, says Falkenberg in California, are the ripple effects from those payouts. Required distributions can, first, push you into a higher tax bracket and, second, translate into increased Medicare Part B premiums (which are tied to annual income). Falkenberg estimates that, in his case, these particular stealth expenses could reduce his annual income by as much as 14%.


Health care inflation. Of course, you're probably calculating health care costs into your retirement budget. But chances are good, says Colleen O'Brien, a vice president at Charles Schwab, that you're not accounting for inflation. Indeed, according to the Society of Actuaries, while overall U.S. inflation has averaged 3.5% a year over the past three decades, the figure has averaged 5.8% for medical care. Such increases are difficult to dodge or bargain your way out of: Medicare establishes what you pay for health care in retirement -- and if you do get sick, you'll likely want the best (read: most expensive) care available. Post continues after video.

What to do

Of course, all of this raises the question: How do you avoid getting smacked with stealth expenses when you retire? Three things to keep in mind:


First, when budgeting for later life, look for tools and calculators that let you incorporate variables like maintenance costs and health care inflation. Hebeler's site,, has some of the best software (most of it free) for doing just that. For example, his Replacement Budgeting program demonstrates a simple, effective way to set up a reserve account that can help pay for everything from carpets to car repairs.


Second, focus -- financially -- on the five years immediately preceding your planned retirement and the first five years of retirement itself. Individuals and couples who make a concerted effort to save and invest can build up almost one-third of their nest egg in the final five years before retiring, says Nancy Blunck, who heads Blunck Financial, a planning and asset-management firm in Anchorage, Alaska. Such an effort, needless to say, can put you in a better position to handle unexpected bills.


Similarly, try to avoid major expenses (a new roof, a new car) in the first five years of retirement, the time when you and your nest egg are "most vulnerable to adverse market returns," Blunck says.


Finally, keep saving in retirement. I am continually surprised at the number of people who -- once they leave the office -- believe their saving days are over. No, you probably can't (and don't need to) save as much as you did in the past. But emergencies don't care that you're retired -- and stealth expenses are waiting behind any number of corners. Draw up, and continue to follow, a savings plan in later life. Ideally, you'll be able to stay on your feet in the ring.


More on SmartMoney and MSN Money:


Oct 27, 2011 3:49PM

Funny...I am the first to comment...

I just want to let the "occupiers" know that they will never be able to retire because they haven't learned how to save and how to plan, only to ask others to pay for their stupidities.

Born on a small farm, no electricity until I was 13, never saw a TV screen until I was 15

and guess what? I graduated and I am living a happy life with my wife and plan to retire and I know too well about hidden costs as this is what I found out in today's one plan, they just do things and expect Uncle Sam or the others to pay for them...I don't want to be born again and live with the upcoming generation...not much hope except if I sell money printing machines..........

Oct 27, 2011 9:45PM

    If you haven't saved all thru your working years it's for sure you won't have enough to retire with. 

Both of us have saved all of our working years but unexpected health problems can wipe it all out

with just one health problem.

Oct 30, 2011 9:56AM
As an individual who born during the "Great Depression", my parents, who had a difficult time of it, taught me how to live frugally and remain out of debt.  Fewer people today approaching retirement know these attitudes and skills.  An automobile purchased just before retirement can easily last twenty or more years with proper maintenance, but many people get the "new car itch" and succumb.  I was advised in pre-retirement classes to expect post-retirement expenses to be at least 70% of pre, but best to plan on 100% or more.  We are living very well on 40% of pre and meeting all of our true needs (but not necessarily all of our wants). The main "secret" to a good retirement is entering with no debt and acquiring none. 
Oct 27, 2011 5:35PM

TK-30, thanks for your comments, here is some of what you are missing on:

I didn't grow up poor, I think I grew up richer than most since my parents taught me values and hard work at a young age and never to have to depend on others for what I wanted. Never in my mind I would occupy streets to tell others about my problems, I would take care of them the right way and ask for help first instead of demonstrating in all sort of disorganized ways and with no message.


Your opinion is yours and mine is mine and I didn't call you anything, I express my disastifaction about what's happening...values and common sense are gone.

The last portion of your comments are the base of today's problem...forming and Unions.

Why can't you live your life and work for what you want and leave the rest alone?

HE/SHE WHO HAS MONEY IS POOR, HE/SHE WHO HAS VALUES AND GOOD COMMON SENSE IS RICH..................and don't forget.................that

Great spirits have always encounter violent opposition from mediocre minds..........

Good luck in you life and hope you live happy.

Oct 30, 2011 8:25AM
Hardcore treatment of seniors is a disgrace to the United States of America. Going around the world starting wars and killing people is another bad act. What about the young? They want a job good enough to pay bills, have some fun and save for retirement. Giving money to other countries while the greater need is here at home. Too bad you need to be very rich & corrupt to be president. No lobbyist in my white house means their all standing on the front lawn giving out raw deals to all but them?
Oct 27, 2011 8:30PM


According to this report from BLS, the "3 legged stool" of retirement is weakening which will force Boomers to either work longer or get a part time job post "retirement."


According to another report, the work force through 2016 will be increasing in elderly workers.  Many who have "retired" will be seeking employment.


Pensions are weakened by decreased benefits;  some may vanish altogether.  Though Wall Street had a good day today that will not last and people's savings will still take severe hits.  Social Security is not at all secure because there is no real money in the Social Security Trust Fund-just IOUs in the form of bonds.  If the economy tanks the Gov will not be able to make SS payments.  Same with Medicare.

The future is very bleak.  Best to plan to working longer, way longer past 66 or if "retired" plan on returning to work in your 70s.

Oct 30, 2011 11:07AM

Tom & Old man,  Both of you in your own ways have shown many how to retire in dignity.   The "know it all"  youngsters will one day see that, let's hope they don't hurt too many folks while learning life's lessons.  We learned our lessons in frugality from parent who didn't have the easiest time bringing us up.  The Depression and WW2 were not easy times, but they percevered and in doing so, taught us. 


   Those of us who have saved and still do for their wants, not needs, don't have as much a problem with the needs end of things, because we have already saved for that.   I have had plenty of curve balls thrown at me, like becoming partially paralized early in my married life.  Losing my job in my early 50's, but because I saved and anticipated those possibilities, I had educated myself enough to qualify myself to replace that job, even though I was an obvious cripple.  When I could have been out enjoying myself, I was studying.  That is another form of saving, not squandering precious time. 


   Yes I do rely heavily on SS for my present income, medicare for health care, and I do have other sources of income as well.  That is the payoff for studying to be able to replace my original sources of income in the past. 


   I also have no plan to become reliant on my children, they are working on their own plan.  Each has some similarities to my own. 

Oct 27, 2011 7:44PM
RIck, dude, chillax.  Ol Box007 was having a pleasant debate you call him an idiot?  Sup with you?  Me thinks you have some issues.  And now I have doubts about some of the things you've claimed. 
Oct 27, 2011 8:05PM

I am very happy to see that all my instincts are right on.

The new generation, i.e. including the 'occupiers' have no clue.


Read this:

Box007  You are an idiot. How can you compare your situation to the protestors. When you grew up there were opportunities and jobs. Don't you get it these kids can't find jobs to have the life you were able to enjoy. You bitter old fool.

The person who wrote this DO NOT KNOW how to read, period.

How can someone grow up with no 'power' and no 'TV' and become succesful, huh?

The Democrats sure don't have a clue and everyone else who haven't been 'THERE'.

The Morale is:  BE AN IDIOT AND YOU WILL SUCCEED.............OR


Oct 30, 2011 1:23PM
How can a higher income through mandatory retirement account distributions lower your total income by up to 14%?  It's just not mathematically possible.  The higher taxes are only on the income above and beyond what you were already making.  The increased Medicare Part B premiums would be a hit but no way could that account for a gross reduction in income of 14%.  Can someone show me the math that?
Oct 30, 2011 7:56AM
Dj needs a definite reality check. The cutting of Medicare is part of the Debt ceiling deal that the Republicans forced on the whole electorate. These self serving millionaires wanted to avoid paying their fair share of the cost that all of us have to pay for Medicare, social security and all of the other programs that help most Americans. But a lot of people somehow believe that by cutting taxes that the economy will turn around and prosperity will return for everyone. While this logic might e true for some very wealthy people (namely the rich people pushing this approach) I believe that jobs are something that most people want and the means to create them hasn't been revealed to us with a tax reduction for the millionaires who won't ever need either Medicare or social security like the rest of us. By the way when businesses had the opportunity to create more jobs in this country they chose the short term profits by out sourcing the very jobs we desperately need to other countries, like Mexico, India, Malaysia and finally mainly China. So who is really responsible for the economic difficulties that we are now faced with? They had the opportunity in the past to obtain tax abatements from local government on many levels with the promise of creating more jobs and where did those jobs go?
Oct 30, 2011 7:35PM
Who in the world are the writers of these articles kidding??  Life is a chance..."punches" always come out of unexpected learn to "roll with them".  Your "facts" look more like guesses designed for the Wall Street cronies....Must be a slow, slow day in the world of "high finance," Glenn....Like most of us are so stupid not to know how changes are the only things constant in our lives....Geez....sorry folks, I don't act like an idiot and do not appreciate being addressed like one, especially from the "Smart Money" staff.  Good luck and God bless!
Oct 27, 2011 7:48PM
Oct 30, 2011 8:44PM
From experience being retired the big hidden costs are medical & inflation. If you are renting you can be priced out of your residence from rent increases.  No money to move and not enough for food. Medical can slam you right out of nowhere. It happened to me. Getting ready to leave for the races and end up on a death bed at $2500 a night - just for the bed. Then there is the family which in these times some one will need help or go down. You become more aware of all the bad stuff in foods at stores. Watch what you take into your body. Cigarettes, alcohol & many different kinds of fats are killers. Exercise, good water, sunshine & laughter are good winners for life.
Nov 7, 2011 12:27AM

   Please remember, adding new taxes or cutting spending both pull money out of the economy.  If you don't like the way Washington is working VOTE.  But, think about what our forefathers had in mind.  A country where people think and do for themselves without government intervention or assistance.  A country where people help each other, where everyone  WANTS to work, and a country where a good man will always find a hand up. (Not a handout)

Oct 31, 2011 10:00PM

Just goes to show....retirement presents you with the same curves as when you are still producing earned income...

Oct 30, 2011 2:27PM
I'm sure Obama will come up with a way to take our retirements and give them to Acorn.
Oct 27, 2011 4:27PM

Hey Box007 - as part of your retirement planning are you one of those paid commentors for right wing organizations?  If you are pre-65 and didnt have "electricity until I was 13" you probably didnt grow up in the continental US.  But even if you did, it is doubtful you have any understanding of either economics or public policy.

As far as the "occupiers" go, should we all just continue to allow Wall Street investment firms to call themselves banks so they can get free money from the Fed Govt?   Do you have no sense of economic justice?  Or history?
And before you call me one of those "occupiers" who only asks other to pay for their stupidities, I am a founder operator of a number of insurance and real estate firms.  My income squarely puts me in the top 2 or 3% of all Americans and I believe fully in the concept "We the People, in order to form a more perfect union . . ."

Oct 30, 2011 7:31AM
To ALL SENIORS,0bama after cutting medicare 710 billion dollars in obamacare,0bama plans to cut social secrity10%across the board,and a set price for your health provider services
Oct 27, 2011 7:06PM
Box007  You are an idiot. How can you compare your situation to the protestors. When you grew up there were opportunities and jobs. Don't you get it these kids can't find jobs to have the life you were able to enjoy. You bitter old fool.
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