Unexpected financial shocks can be particularly stressful for retirees. Not run-of-the-mill expenses like, say, a higher auto insurance premium or a property-tax increase. We are talking about large events that stress a nest egg. They are more common than you might imagine.
Indeed, the Society of Actuaries' Committee on Post-Retirement Needs and Risks has been working for two decades to better grasp how retirees manage financial issues.
The results: Nearly one in five retirees, and nearly one in four retired widows will experience four or more financial shocks.
Unexpected health care costs get a lot of attention, but the actuaries found that's typically not the biggest bugaboo. Retirees who have Medicare and a supplemental plan (about 81% of them, according to Kaiser Family Foundation) typically have their medical bills well covered.
Instead, the actuaries report that, based on focus groups, the most common financial shocks are major home repairs (28% of retirees) and major dental costs (24%). The latter occurs because Medicare and most supplemental plans have weak or no dental coverage.
Other significant shocks include widowhood, divorce during retirement, long-term care expenses and adult children needing financial assistance.
The actuaries' research suggests retirees are resilient, making necessary adjustments to their spending to cover the shocks. But those adjustments are often substantial, leading to a degraded lifestyle.
More than a third of retirees saw their assets decline by 25% or more. Roughly 10% had to reduce monthly spending by 50% or more.
