Retirement Planning: Beware of Surprise Expenses
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. When is a surprise not a good thing? When it's an unexpected expense that pops up and starts eating into your retirement savings. We'll discuss how you can prepare for and avoid surprise expenses. First, some money and market news you should know. Americans are in a giving mood. They ranked number one in the Charities Aid Foundation's World Giving Index, which tracks where people are most likely to help a stranger in need. The index is based on a Gallup poll of 1.3 million people worldwide. Between 2009 and 2018, they were asked if in the past month they helped a stranger or someone they didn't know who needed help, if they donated money to charity...
or if they volunteered their time to an organization. Americans topped the list, but while 58% answered yes in 2018, that was down from the peak of giving, 64% in 2014.
A key rule of retirement planning is expect the unexpected, especially surprise expenses.
What unexpected costs can eat into retirement savings like appliances or home repairs?
Wall Street Journal financial columnist Glenn Rufenack is on the line to discuss costs that can seemingly jump out of nowhere and eat away at retirement savings if you're not prepared. So, Glenn, replacement costs often sneak up on retirees. What are they?
These are the big ticket items, a furnace, appliances. your computer or the need to paint your house. We tend not to think of these problems or replacement costs as following us into retirement, but they do, and they can put a pretty big dent in your nest egg.
So it can hit retirees who are, for example, ready to sell a house to downsize?
That's certainly one possibility.
How do replacement costs affect retirees who plan to downsize or sell their home?
For example, my wife and I, we had to replace our air conditioning unit sooner than we expected, and that kind of came out of the blue for us. And that's the kind of thing you need to prepare for.
And are seniors projecting how long they're going to live accurately? Is that contributing to some of the hit of the expenses here?
Yeah, that's a good question. People, for the most part, tend to underestimate their life expectancy. They just don't think that they're going to live long enough to see all these expenses in later life.
Why do retirees underestimate longevity and how does that worsen surprise expenses?
And and that's just not the case.
How do costs associated with relatives sneak up on families?
Well, this is a tricky one, a difficult situation. A lot of times it's aging parents who feel a financial pinch and they need they need help. Or it's the younger generation, younger family members who suddenly find themselves in a bind, a child who gets divorced. or a grandchild who needs help with tuition. My wife and I actually had an interesting experience. Our granddaughter moved to a new town and needed some help, kind of unexpectedly. And so we stepped up and helped her. Certainly not an expense that we had foreseen, but she needed help.
How do experts in the field recommend that older Americans and retirees prepare for these sorts of surprise expenses that come around?
Well, there's two big steps you can take. First, you can try to avoid major expenses early in retirement. And when I say early in retirement, say the first four or five years.
How can family emergencies or relatives' needs create sudden financial strain for retirees?
You don't want to replace the roof. You don't want to buy the car. You don't want to replace the new furnace early in retirement because that's when you're nest egg. is is most liable to get hit by a bear market so again and you want to try to avoid those major expenses early in retirement the other big step that people can take is to keep saving and we we tend to think that once we're in retirement we no longer need to save uh anymore but you can you can set up a savings plan that anticipates some of these big expenses coming down the road
And there's another area that really requires a lot of awareness by older Americans, and that is the impact of distributions from their tax-deferred accounts.
That's a big one, and people just don't see it coming. They know they need to begin withdrawing funds from their IRA or other retirement accounts once they reach age 70 and a half. But what they don't realize often is the ripple effects from those payouts.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–1:14
2
What unexpected costs can eat into retirement savings like appliances or home repairs?
1:14–1:57
3
How do replacement costs affect retirees who plan to downsize or sell their home?
1:57–2:28
4
Why do retirees underestimate longevity and how does that worsen surprise expenses?
2:28–3:37
5
How can family emergencies or relatives' needs create sudden financial strain for retirees?
3:37–5:04
6
What practical steps can older Americans take to prepare for major surprise expenses?
5:04–5:29
7
How do required distributions from IRAs trigger tax and Medicare cost surprises?
5:29–6:00
Speakers
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