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These Big Expenses Could Drain Your Retirement Savings if You Aren't Prepared for Them

By Christy Bieber - Apr 7, 2021 at 7:55AM

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They could put your nest egg at risk.

Most retirees have a limited amount of money saved to help supplement Social Security. Unfortunately, if your nest egg isn't big enough to cover three big expenses you're likely to encounter, you could find yourself in serious financial trouble.

To make sure your money doesn't run dry while you still need it, make a plan to cover these three major costs as soon as you can.

If you factor them in when setting savings goals early in your career, you can be better prepared for them. If you're already in retirement, you also need to look into options to make sure you can cover them when they inevitably arise. 

Older man grabbing piggy bank away from outstretched arms.

Image source: Getty Images.

1. Healthcare

The cost of healthcare is one of the biggest shocks many seniors face. Unfortunately, far too many people anticipate they'll need to spend between $50,000 and $100,000 on care throughout their later years when in reality recent estimates from Fidelity put that number closer to $300,000

Spending on healthcare isn't something that can be avoided when you need medical services. You should invest in a dedicated account earmarked for your future health needs to make sure you're able to cover these costs.

If you're eligible for a health savings account (HSA), this is the ideal choice because you can put money in with pre-tax dollars, defer taxes as it grows, and take money out for medical needs without paying taxes on withdrawals. If you aren't eligible for an HSA, increase the amount you're investing in your other retirement accounts to make sure you have enough for medical issues. 

If you're already in retirement and it's too late to plan ahead, shop for Medicare coverage very carefully with the aim of keeping total costs reasonable -- and consider working on a savings account for medical expenditures now.

2. Long-term care

Long-term care can cost thousands of dollars a month and the majority of seniors will need it at some point

It can be a major challenge to save enough to cover it, even if you start early, so consider shopping for long-term care insurance. Just make sure you understand the policy terms and that your coverage is comprehensive enough. 

Retirees may also wish to work with an attorney on an estate plan that helps them qualify for Medicaid nursing home coverage without having to spend down their wealth before becoming eligible.

3. Helping out family members

The majority of older Americans responding to a recent Edward Jones survey indicated they would be willing to put their own retirement on the line to help out loved ones.

While it's understandable to want to help the people you care about, you don't want to do so at the expense of your own security. Otherwise, you could find yourself in dire straits as you get older.  

If you know you want to give to your children or other loved ones, plan for this when setting retirement goals and up the amount you're saving -- if you still have time. If you're already in retirement, set a budget for how much help you can give without withdrawing too much from your nest egg or compromising your own quality of life. Commit to stick to it. 

You can always offer non-monetary support, such as providing child care for your grandchildren or offering a room in your home to live. Doing that can be a far better way to help the people you care about than draining your retirement savings. 

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