Dental care, as well as skyrocketing health-insurance premiums and property taxes, top readers' lists of unwelcome in-retirement costs.
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By Christine Benz | 08-05-12 | 06:00 AM | Email Article

Note: This article originally posted on Aug. 5, 2012, but we are re-featuring it as part of Morningstar.com's Retirement Readiness Week.

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.

Many pre-retirees sensibly devote a good deal of attention to forecasting how much they'll spend in retirement, thinking through their basic living expenses as well as how much they'll spend on extras like dining out and travel. They anticipate when they'll need to replace their roofs, when it will be time for a new car, and how their medical expenses are likely to trend up as they age.

But it's simply not possible to forecast each and every expense with precision. In a recent Investing During Retirement Discuss forum thread on Morningstar.com, I asked our retired readers to share which retirement expenses had caught them off guard. Health-care-related expenditures topped many retired readers' lists, with dental work most frequently cited as an unpleasant source of additional costs. Other readers noted that happy aspects of retirement--new grandchildren, travel, and hobbies--had bumped up their in-retirement expenses. To read the complete thread or share your own expense surprise during retirement, click here.

'An Unanticipated Dental Event'
One of the most striking aspects of the discussion was just how many posters mentioned dental expenses as a cost they had underrated prior to retirement. Although many employed people are covered under their companies' plans, retirees can't typically purchase insurance, and significant dental work can be costly.

LFremont summed it up as follows: "The one cost area that is uncontrollable and hard to anticipate is dental. I don't think there is any decent insurance to protect you, and the cost can be really substantial."

And in contrast with other expenses, such as home and car maintenance, dental costs can be lumpy, making budgeting difficult. Orygunduck wrote, "Dental expenses are tough to predict, as a couple of crowns can run up costs, quickly! I liken it to having to have major work done on your car's engine and transmission at least once a year."

Posters Jkimel44 advised that the best defense against rising dental costs is to set aside a fund to defray them as they occur. "Put a little extra money aside each year to cover an unanticipated dental event."

'Health Insurance Is Also a Growing Burden'
Although dental care received a large number of mentions, many readers cited health-care insurance premiums, as well as additional medical expenses not covered by Medicare, as a source of unanticipated costs during retirement.

Health-care insurance is a particularly large and unwelcome expense for retired people who aren't yet eligible to obtain coverage under Medicare. Gizmo25 shared, "Health-care insurance was expected to be expensive, but the actual amount was a shock. I retired at 57, my wife at 53. Over one third of our living expense is for health care, and Medicare is still a couple of years away."

Reddog is facing down a similar situation. "My wife is pre-Medicare, and insurance is a whopping $4,000 a year, even with my company's plan. Yikes, pretty outrageous."

 

The rapidity with which health-care premiums have risen caught Gyer12 off guard. "Health-care insurance premiums went up 100% after the first year of retirement and 30% last year."

Ditto for HNRROBERT, who shared specifics on rising health-insurance premiums. "Our biggest surprise was heath insurance, we retired when we were 57 and health insurance was $8,500 then; now, four years later, we pay $15,300 for less coverage."

Unfortunately, being eligible for Medicare doesn't eliminate unexpected costs altogether. DrHelen noted, "Even with Medicare, health insurance is also a growing burden with Part B & D premiums as well as Medicare supplementary."

Given that inflation in health-insurance premiums could be here to stay, Jkimel44 believes that it's valuable to build those increases into the budget. "Health insurance is expensive, but fairly predictable. Just make sure to factor in a 20% rise in premiums each year."

In addition to citing insurance costs, readers noted that they hadn't fully anticipated other health-care-related expenditures in retirement.

GilT4609 wrote, "Drug co-pays and 'donut hole' costs [were] a surprise even with a Medicare advantage plan."

Long-term care costs, even with a long-term care insurance policy, can also be eye-popping, according to JonathanQ. "My parents' biggest (mostly) unanticipated expenses relates to care for my stepfather's Parkinson's, dementia, and his inability to fully care for himself after some strokes. A top-of-the-line long-term care policy pays for the $100,000 a year nursing home, but he could outlive its six years of benefits and there are plenty of incidental expenses. His retirement assets (rental property) could be liquidated for a few years' more care; after that she will be supporting him on her pensions and investments."

While acknowledging that medical expenses can be difficult if not impossible to control, Billster advised that retirees can empower themselves by taking preventative measures: "There are certainly no guarantees in retirement life but maintaining a healthy preventative lifestyle goes a long way toward a happy, healthy, and secure retirement. In fact it is every bit as important as making the right investment/asset allocation choices, as your physical health or lack thereof directly affects your financial health. Investing an hour each day exercising could have a huge payoff financially over the course of your retirement lifetime." 
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Morningstar - 2012/08/05 - What Unexpected Expenses Crop Up in Retirement? - <a href="http://www.morningstar.com/articles/author/30-christine-benz.aspx">Christine Benz</a>
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