When planning for retirement, most people only think about the big numbers initially, like your savings or pension. But some things that often get overlooked are hidden, unexpected costs that can throw your retirement plan off track at the worst time. Some of these hidden expenses might be small, but they can add up quickly during your retirement years. According to the Ontario Securities Commission, 32% of retirees say their monthly expenses in retirement are higher than expected.
The good news is that if you’re aware of these potential costs, then you can create a retirement plan that supports your lifestyle.
Learn about some of the hidden costs of retirement and how you can plan ahead for them.
1. Healthcare costs can add up
Although in Canada we are fortunate enough to have universal public healthcare, it doesn’t always cover everything. Medical expenses tend to increase with age, and some costs for things like prescriptions, dental care, and vision care may need to be paid out-of-pocket.
Another significant cost to consider is the potential for long-term care. Whether it’s a nursing home, assisted living, or in-home support services, these are expenses that can be quite high and cause some financial burden.
To plan ahead for these potential costs, consider looking into supplemental health insurance that covers expenses that are not included in public healthcare, such as dental, vision, and extended healthcare. Many insurance companies have plans that are specifically for retirees. Additionally, if you retire before the age of 65 and have health benefits through your employer, you may be able to retain your existing coverage. However, you’ll need to pay 100% of the premium, which could come with sticker shock.
2. Retirement income is taxable
Retirement doesn’t mean you no longer pay taxes. In Canada, withdrawals from RRSPs, RRIFs, and pensions are taxable as regular income, like your salary is now. Retirees may find that their net income is less than they had expected when they rely on all taxable sources of income and cannot optimize their withdrawals. This could cause additional financial strain when you factor in healthcare costs or increased cost of living.
A smart strategy to prepare for taxes on your retirement income is to work with a financial professional who can help create a withdrawal plan in order to minimize what you will owe. It’s also important to take advantage of senior-specific tax credits to reduce your taxes owed.
3. Lifestyle upgrades
Retirement is a time to enjoy life, whether that means travelling, learning new hobbies, club memberships, or spoiling your grandkids. But those expenses can add up quickly, especially in early retirement when you’re more active and eager to make the most of your new freedom. According to Blueprint Financial, spending trends start higher in early retirement years, and then gradually decrease by around 25% later in retirement. These expenses can quickly eat into your savings, leaving you with less for essentials and unexpected costs down the road.
A cash flow plan can help you balance fun and the important stuff. Working with a Certified Cash Flow Specialist (CCS) is a great way to see where your money is coming from and where it is going. A CCS can help organize your finances so you can enjoy retirement while remaining financially secure.
4. Home maintenance and repairs
If you’re a homeowner, your home may be your biggest asset, but it will also likely be your most expensive ongoing costs. From routine maintenance, like furnace servicing, to potential accessibility upgrades, like grab bars or stair lifts, work on your home can become quite costly. Along with regular upkeep of your home, unexpected emergency repairs could arise such as burst pipes, or storm damage. Emergencies like that can really throw your finances off track.
So be proactive and plan ahead. Regular maintenance on your home should be considered when creating a cash flow plan. For emergencies, it’s important to have an emergency fund set up in advance. According to Canada Life, your emergency fund should be three to six months' worth of living expenses. This will create a cushion you can fall back on to relieve some of the financial strain when the unexpected happens.
5. Helping family members financially
It’s common for people in retirement to help out their adult children and grandchildren financially. According to Fidelity Investments Canada, nearly 60% of retirees are helping their adult children with expenses. This could include paying for tuition, a down payment on a home or unexpected emergencies. While it’s nice to help support your family, it could put more pressure on your own finances if you’re not careful.
In order to not jeopardize your financial security and cause stress in your retirement years, set boundaries. Have conversations with your family about your financial limits and set expectations. It can be difficult to have these types of conversations, but it’s important to let them know when you aren’t able to help them financially.
The hidden costs of retirement can add up quickly. But with the right strategies in place, you can be prepared for the unexpected. Retirement isn’t just about saving a nest egg; it’s also about being able to manage it wisely.
Working with a CCS to create a well-structured cash flow plan can help you figure out more accurate retirement income needs. It also provides practical spending advice to ensure your income supports your lifestyle and covers your needs without unnecessary stress, so you can enjoy retirement and be ready for whatever comes your way.
About CacheFlo
CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allow them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.
About the Certified Cash Flow Specialist (CCS) program
CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.
About the Real Life Money program
An annual, digital, behaviour-based program that teaches employees everything they need to know and do to become financially capable. Our proven financial wellness program that combines online workshops, microlearning, and a powerful app called Winton that puts financial capability, confidence and control into the hands of every employee. Learn more.
