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5 Hidden Costs That Catch Retirees Off Guard · Retirement Answers

• 0:00
  Jacob: Hey, friends, and welcome back to another episode of Retirement Answers. My name is Jacob Duke. I'm your host as always. I apologize if I sound a little bit nasally today, got a little bit of cold going on and totally fine. Just don't sound very good, but hopefully, today's episode is helpful for you.
• 0:17
  So I wanted to talk about some hidden costs that might pop up for retirees and kind of catch you off guard, maybe some things you didn't think about or didn't think about long enough or hard enough, or maybe didn't consider. So before we jump in, just wanted to, you know, say thank you so much for listening. This is something that's fun for me to do and kind of create for you, but also, I hope it's valuable and beneficial for you. So if you have questions about different topics that maybe I haven't talked about, or you want to learn more about, shoot me an email, happy to add episodes around those things and talk about those topics, learn more about them, I can communicate back to you and give you some ideas in those different ways. So thank you so much for listening.
• 0:52
  If it's beneficial, again, a rating there on Apple Podcasts or Spotify helps me out a bunch, helps other people out a bunch, because they can then find the show because the algorithm pushes it out to more people. So I'd appreciate it if you did that. Okay, what are some different hidden costs or things that might catch you off guard? Well, the first one is just around health costs in general, and there are different layers to this. Okay, so we have to think about 65.
• 1:16
  So before we ever get to Medicare age, if you retire before then, you've got to navigate health insurance before you get there. And that's always a big question for a lot of people. And in fact, it holds a lot of people up from actually retiring because of this fear around the unknown of a private insurance policy or something like that. So you got a few different options here, some things to know about, but one of those options could be simply just continuing on your current employer plan through COBRA. Now, is probably not going to be the cheapest option, but if you have really good insurance, and maybe you're paying a higher portion of your premium every month than maybe even you like right now.
• 1:52
  And so your jump in premium costs continue on your current plan through COBRA, wouldn't be that great, then it might be advantageous for you to think about using COBRA for eighteen months until you maybe have to find another solution, or if after that eighteen months, you will be 65 and Medicare eligible, then that's great. You kind of bridge that gap between when you retire and getting to 65 with COBRA. Now, here's a key benefit potentially about using COBRA. You can actually use your HSA, if you have one, to pay the premiums on your COBRA plan. Okay, so if you stop work, you can pay your premiums with your HSA.
• 2:29
  Now, is not an opportunity for those of you who will be using a private policy like an ACA plan, something before Affordable Care Act what ACA stands for there, before you get to 65, you cannot use your HSA to pay premiums on those private insurance policies. So you can use your HSA to pay for your COBRA if you'd like to go that route. And also too, we'll talk about Medicare here in just a moment, but you can use your HSA to pay for Medicare Part B, C, and D, and then C in that situation is Medicare Advantage. What your HSAs cannot pay premiums for is going to be your Medicare Supplement or Medigap. That one is not eligible to be paid for by your HSA.
• 3:07
  So before 65, you have a couple different options for health costs, health insurance, you could do your COBRA plan, which will be slightly more costly, and you can also use a normal private policy for yourself. And the benefit of using an ACA plan or a private health insurance plan before you get to 65, could be the fact that you could get some subsidies there if your income is low enough. So, if you have a low income, you can qualify for subsidies, because it's income based subsidies on your Affordable Care Act plan and reduce your overall premiums on health insurance. Now, there's a few different things there on ACA subsidies. There's a lot there to kind of look at and know, but having money that's not tax deferred, meaning Roth money, but more preferably cash or brokerage money that you can use to live on to help reduce your premiums on those ACA plans and kind of keep your income as low as possible is going to be advantageous for you.
• 3:57
  So this goes back to what I talked about all the time, building out tax diversification, have multiple different account types and tax types to pull money from. It gives you flexibility to lower your premiums before you get to 65. So that's before 65, once you get to 65 and beyond, you'll have Medicare Part B, you'll have either Medicare Advantage, which is called Part C, or you'll have a Medigap Plan, also referred to as Medicare Supplement, and then maybe Part D. Now, if you want to have a Cadillac coverage is what I call it, like everything that you could ever need, the best policies that you can get for health insurance, you would sign up for Part B at 65, you'd also sign up for Part D, which is your prescription drug plan, you'd sign up for that at 65 as well, and then also you would sign up at 65 for a Medigap or Medicare Supplement plan, and there's different levels or types of plans within Medicare Supplement and typically Medigap Plan G is going to be a great one, because it covers almost everything. The only thing it does not cover is going to be your Part B deductible, which your Part B deductible is like a couple $100.
• 4:59
  So don't worry about paying extra on a premium to cover a couple $100 on Part B deductible, because it's very, very low. So Cadillac coverage is going to be something along the lines of Part B, Medigap Plan G, but then also Part D as well. So that's the way to do that, but here's the catch, it's not going to be the cheapest, it's not going be the most cost effective in terms of premiums and a total out of pocket maximums. Yes, it could end up being the most effective, especially if you need a lot of those coverages and things like that, and you're a frequent visitor of the doctor's office, or just have, you know, pre existing conditions there that you need to have taken care of. So that's a little bit about Medicare, and obviously you can have a Medicare Advantage or Part C plan, which will likely include prescription drug options and coverages there, and could be very cheap, if not even free for you.
• 5:42
  So, there are different things, there's pros and cons to all sides of it, you know, what I would do there is ask folks who've gone before you like what's their experience been on all sides of it? Because there are a few different catches that could get you down the road is, let's say you're not unhealthy in any capacity right now, you have no major issues at all from a health standpoint. So, you're going go with the cheapest coverage because like, don't need a whole lot of insurance, I don't need a whole lot. Well, the problem there could be is if something does come up in the future, you can't go from Medicare Advantage to a Medigap plan without underwriting at that point. So, you would have to be underwritten.
• 6:12
  Any pre existing conditions could make you ineligible for Medigap or Medicare Supplement. Now, if you apply for Medicare Supplement or Medigap immediately upon 65, there's a time window there. If you do that within that time window, they do not have the right to underwrite you. So all pre existing conditions will be covered under your Medigap policy, which would be what you want to do. Okay, so at that point, what you'd have is just your premiums every month on Part B, Medigap and Part D, and then that's it essentially, it's outside of your small Part B deductible.
• 6:41
  So just depending on your health situation, but also considering some of the future issues around health statuses, it might be advantageous to just pay a higher premium every month from the beginning rather than trying to switch over in the future whenever you would need a better type of coverage. So, there's a lot there. I think I've done some episodes on Medicare in the past. Maybe I need to dig into that a little bit more because that's a big question for a lot of folks. And finally here on health costs is going to be something called IRMA, Income Related Monthly Adjustment Amount, that has to do with your premiums on your Medicare.
• 7:14
  So, you could have increased premiums if your income is too high, which could be due to the fact that you might have a pension. It could be due to the fact that you only have tax deferred money to pull from and live off of in retirement. It could be that in combination with your Social Security benefits and in the future, for those of you who have large tax deferred balances, you could be forced into IRMA due to your RMDs or Required Minimum Distribution. So, there's a lot around health insurance and just health costs in general to navigate with retirement, you know, pre-sixty five, what do you do? How do you find the right coverage for yourself?
• 7:44
  We have partners that we work with to help find that, that are health insurance agents, and we want to make sure that you get in touch with them if you're a client of ours to help navigate that correctly and get the right coverage for you. Once you get to Medicare age, again, we have the same partners that we partner with to find, hey, do we need a Medicare Advantage Plan? What about a Medicare Supplement Plan? What's the best thing for your scenario based on your health right now, but also potential health issues that might up in the future? We navigate that thoughtfully, and then we want to make sure we minimize any Irma impacts in the future because of how we structure your income plan and think about how we, you know, take money from your accounts and where that's going to come from and the tax ability and that goes into the tax planning side of as well.
• 8:20
  So that's the first thing that catches a lot of people off guard is just all the little hidden traps around health insurance and just health costs in general and retirement. The second hidden cost that's just a real bummer, but is honestly common for a lot of people, is taking care of parents or family that have, you know, obviously older than you. Typically, this is a problem because of your age at the time of retirement and perhaps your parents age. So if you retire 60, the odds of your parents being between age 80 and 90 is pretty good. So you would have maybe to take care of them if they're still alive and just maybe starting to struggle a little bit more.
• 8:52
  So you either have to take care of them yourself or they have to go to some sort of assisted living or home health care, things like that. And if they don't have any financial wherewithal to pay for those things, typically that's going to fall into your lap. So a couple different things to think about here is going to be the cost of your time and your energy, right? The emotional energy that goes into caring for parents or family, but also potentially even the financial cost of taking care of them by having someone come to their house and stay with them, or have them actually being in an assisted living facility. There's different things to consider there.
• 9:23
  You got to evaluate this for yourself. And it's not uncommon for me to have conversations with my clients around this, because they are excited about retirement only to find out that they're gonna spend the first three to four years taking care of their parents way more than they otherwise thought they were going to. And it kind of puts a damper on retirement for them for that little bit of period of time, because of just kind of the emotional burden that comes with that. So that's something that kind of comes up unexpectedly a lot of times. So if you have parents that are still alive, and you know that they've got some health struggles that are starting to pop up a little bit, prepare yourself mentally for that and just know that, part of this retirement thing might end up being just one of those kind of, you know, burdens or a little bit of a drain there emotionally on you.
• 10:00
  So be prepared for that as you start to walk into retirement. The third hidden cost that is just maybe unexpected in terms of how much it might end up being is gonna be taxes. Most people assume that they're gonna pay more taxes or higher tax rate while they're working simply because they're working and earning an income, but that's not always the case. Whenever you start to factor in things like social security, plus a pension, if you have one plus IRA distributions, plus RMDs, plus, you know, rental income, any source of income that you have, or maybe brokerage account, you've got some dividends or interests or whatever it might be. All these things start adding up and you might find, hey, I'm paying it just as much tax now as a retiree than as I was whenever I was working, then I might actually be earning more money now than I was then.
• 10:41
  How's that possible? And so what happens here is people end up paying a lot more in tax and retirement than they realize, which is why I like to focus on tax planning with my clients and say, hey, how we structure all these different things and how we look into the future around RMDs and, you know, do we want to take Social Security yet? Because here's the negative impact now, but also long term. All these different questions are important to understand because everything comes back to taxes in some capacity, right? Everything is a tax decision for the most part around, you know, which account do we pull from before '65, you know, does that impact your again going back to number one, your health insurance premiums before '65 or is it worth pulling from taxable sources now and have a higher insurance premium before '65, so that we can lower our RMDs in the future.
• 11:22
  Therefore, we don't have huge RMDs at that point and also have higher health costs through Irma at that point as well. So there's trade offs and decisions and so many things to look at, but that's why tax planning is crucial. And I'm excited for you because you're the one tuning into this episode. And if you're new here, is a lot of the stuff we talk about and dig into deeply, but I found that just a lot of people are unaware of the total tax they might end up paying throughout the rest of your life. And I personally can attest to the fact that taxes will likely be your largest expense throughout the rest of your life over any other particular category.
• 11:52
  So taxes is the third thing that just catches people off guard. So be aware of that and then put a good tax plan together around your overall income, where things are going to come from, how that's going to be structured, so that you don't get caught off guard in the future. The fourth one here is going to be the fact that you have a lot of time on your hands, and whenever you start to have hobbies and just leisure activities and just things that you enjoy doing, typically that's going to be expensive, right? So if you like to go fishing and you want to buy a new boat, well, new boats are not cheap anymore. They're 50 plus thousand dollars depending what you buy.
• 12:22
  Or if you like to play golf and you want to buy a new golf set, new golf balls, and you want to have a golf membership, all these different things start to pile up and it's way more than you ever thought it would be. So the fact that you have more time on your hands, lend yourself the opportunity to go and do more, which means you're gonna have to spend more to do those things. So what I found is, is I found that people underestimate how much they're going to spend a retirement because they're basing it on what they spend while they're working, rather than what they would estimate their cost to be based on their hobbies and interests as they go forward. So a lot of people think about just vacation costs like $20 a year, or $30 a year, whatever your price is to go fly and travel and do, but your day to day spending is always going to be higher as well, because you have time to go have food with a friend, go on an extra weekend vacation, or actually have hobbies here and spend time doing those things, but that costs money to do.
• 13:10
  So there's typically a direct correlation with how much time you have and how much money you're going to spend. The more time you have, typically the more money you spend, and that's just the way that that normally goes. So think about that, think about what are my hobbies? What are my activities that I want to pick up or start doing or keep doing? And that might actually increase how much you spend on a monthly basis in retirement above what you're spending right now today, because you have time to go do those things.
• 13:33
  And the fifth and final thing that just seems to come up out of nowhere unexpectedly is going to be just home maintenance costs, especially if you have an older home, right? So you might have a wonderful home, but it's an older home. As you go, and as you go for the next twenty, thirty years of retirement, if you continue to live there, gonna have plenty of things pop up, AC units, furnaces, roofs, sidings, new paint, all these different things that have to happen over time, and you don't really think about them until they come up. Another big one that's starting to pop up more and more is a big problem for a lot of people is going to be the insurance cost of owning a home, right? So insurance has skyrocketed in premiums over the last few years due to these natural disasters that seem to be on all the different coasts.
• 14:12
  And what's going happen there is your premium is going to be outrageous and as home values have increased, your premium is based on that home value as well. So as the as the rate increases and your home value increases, those two things are not a good recipe for low insurance costs. So insurance costs could end up driving people out of home ownership, honestly, depending on where you live. So that could lead you to a couple things. Number one, it could lead you to selling and simply renting, right?
• 14:36
  So you take your equity out of your house, you stuff that away into a money market or have that invested in your brokerage account a particular way, and you just rent and pull from that sum of money for the rest of your life. And you've got less headache on home ownership, you don't have to worry about maintaining anything, you don't have to worry about all the insurance costs, you just have your sum of money out of your equity that you now can live on and pay rent with. Another option would be to relocate. So relocate from a higher cost living area to a lower cost of living area, and that'll lower your overall premiums, especially if you move inland, so away from the coast, you can move inland and the insurance premiums are a lot cheaper there, and the home values are typically cheaper there as well. So a few different options there, but home maintenance is something that pops up in a few different ways from actual maintenance, but also now insurance is a big, big question on a lot of people's mind.
• 15:22
  And when you start to factor that in, it might make sense for you to do something a little bit different, whether it be rent or relocate. So, are just some things that come to mind when I think about what might catch retirees off guard based on the conversations I have on a day to day basis. I'm sure this doesn't cover everything. So if there are other things that you think might be included here or might need to be included here, shoot me an email and say, Jacob, here's something that's come up in my life, you know, maybe this is something you can share with clients or your audience as well. That'd be helpful for me, right?
• 15:48
  Because you're the one in the middle of it, and I just want to communicate well and apply these things to your situation as best I can. So thanks so much for tuning into this week's episode. And just a quick announcement for you is, me and my firm here at River Tree, we are taking on up to 10 new clients here in 2025. And we want to make sure that we're the right fit for those 10 people. We want to make sure that we have high touch, high value engagements with them for people who really value and need what we do in terms of the service we offer.
• 16:15
  So if that's something that you're like, hey, Jacob, I'm trying to find an advisor, I'm trying to find the right person, just reach out to us. Happy to have a conversation with you, learn more about you and see if you might be a good fit for what we offer. And if not, that's totally fine. The podcast will remain free. But if you want truly comprehensive planning, something that's highly engaged, where you get thoughtful advisors that are on your side working for you, then reach out to us, there's going be a link down in the description below, and you can apply there using that link to see if you'd be a good fit for what we do here at River Tree.
• 16:43
  Alright, thanks so much for tuning in. We will talk to you again next week. Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacob@retirementanswers.net. And I'd love to answer that question for you right here on the show.
• 17:03
  Also, I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning in to this week's episode. I look forward to talking with you again next week.