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Protect yourself from unexpected expenses

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June 25th, 2013
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You ve no doubt factored into your budget all of the recurring monthly expenses you expect to pay during retirement. But, what about those unplanned expenses that inevitably pop up when your furnace peters out, your dog gets sick, or your granddaughter has a destination wedding? With some savvy planning, you can prevent those unexpected expenses from blowing your retirement budget. What I tell clients is to make those unexpected expenses expected, New York financial planner Anna Pfaehler (palisadeshudson.com) says. Build some cushion into your budget for a trip or a major home repair.

The budget busters

One of the biggest budget busters is non-routine home maintenance. If the roof starts leaking or the refrigerator breaks, you usually have no choice but to shell out for repairs. While you can t necessarily predict how much money you ll need each year to maintain your house, Pfaehler says you can protect your budget by stashing away a certain percentage of your home s value. Ask a trusted financial advisor for advice on what percentage to set aside. Perhaps the most common unexpected expense for retirees is medical bills. That s why Diane Omdahl, president of 65 Incorporated (65incorporated.com), a Medicare educational and consulting organization, urges older adults to make sure they really understand the ins and outs of their Medicare coverage. Omdahl says it s important to understand the difference between original Medicare and Medicare Advantage plans. While Advantage plans may offer lower premiums, you could get dinged down the road with unbudgeted expenses. One Medicare Advantage plan has $265/day co-pay for hospitalization, Omdahl says. You will save money initially, but if you end up in hospital, it can derail a budget. Unexpected expenses can show up in the form of loss of income during retirement. That is why Julia Chung (www.facetadvisors.com/about-us/our-team), a wealth advisor in British Columbia, Canada, advises retirees to purchase a life insurance policy for the income-generating spouse. For example, if your husband s pension benefits don t transfer to you, it might be wise to purchase life insurance to replace that income. Of course, the cost of life insurance increases with your age, so Chung says you should compare the cost of premiums with the income you could generate by investing the same amount. And she says, Find a broker, someone who has contracts with everybody, so they aren t biased and can find you the best deal. The good news is that we re living longer than ever, but the downside is that more of us may one day require long-term nursing care. Presently, you can t count on Medicare to pick up much of the tab for in-home health care or stays in nursing facilities, so Chung says it may be wise to consider purchasing a long-term care insurance policy. But, she says not all long-term care policies are created equally. Look for one that is affordable, covers both spouses, and offers the maximum amount of flexibility for you to choose your own providers. meghan.streit@erickson.com

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