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28 Apr 2022

Travel back in time to the year 1900, and the average life expectancy in New Zealand was about only 46 years of age. Fast forward to the current day, and we’re living to be, on average, over 82 years old. Kiwi’s are living longer than ever. We have more time in our lives to experience the world, resulting in more time spent in retirement. Being retired may seem like it’s far off in the future, but in reality, retirement can creep up quickly. It may be easy to assume that you can rely solely on receiving Superannuation and Kiwisaver payments in old age, but retirement sometimes can catch us out with hidden costs. Considering these often unexpected expenses and making a retirement budget can set you up for a comfortable life after turning 65. Read on the uncover the top 5 hidden costs of retirement.

Let’s get into it!

1.    The cost of housing

When people take stock of what's essential to a happy life, having a warm and cosy place to live is commonly high up the list. This means that your housing can be one of the vital costs to consider when you retire. As we already know, housing can be a costly expense, and it could be even more expensive in the future. Here are some of the aspects of housing that could pop up as a hidden cost in retirement:

  • Housing market

We’ve seen significant increases in house prices and mortgage rates over recent years, and it looks like this could continue. This trend could have negative impacts if you wanted to buy a property in your twilight years. Mortgage interest rates are also a hidden cost that can be worth considering, as this could take a large portion of money from your pocket. You may need to settle for a smaller house or live further out from cities (of course, this might be what you prefer!)

  • Retirement living

Depending on where and how luxuriously you want to live, the price of retirement villages can vary a lot. In saying that, most retirement villages are great as they’re built with the comfort of the elderly in mind. Additional care and easy access can add to your quality of life. If you were considering buying in a retirement village when you’re older, it might be worth noting that most villages make it a condition that you must resell through their company. Often, there are no capital gains as the retirement village will set the resale price. There are helpful resources available to read, so you can understand the ins and outs of buying in a retirement village before deciding.

  • Renovations to your own home

There can be real benefits to living in your own home in the long term, including retirement. But as we get older, we may require practical modifications to help us stay independent, like a stairlift or handrail in the shower. These renovations may be worth considering early to prepare for the cost. For some circumstances and house modifications, there is also government funding available.

2.    The cost of healthcare

There’s no avoiding it; we all age eventually. There’s also no getting around the fact that there will be higher medical costs as we get older. You may feel like a spring chicken now, but illnesses are more likely to pop up later and in life (not to mention potentially being a bit more accident-prone too). Some of these health issues can bring hidden costs that may be worth considering when you are actively planning for your retirement.

  • Unfunded medications or procedures

Although there may be government assistance available for some medicines and procedures related to old age, common illnesses remain unfunded. This can include certain cancer treatments.

  • Transportation to medical appointments

As we get older, driving can become more challenging. This difficulty could create an extra cost of funding to transport yourself to medical appointments.

  • Health insurance costs

As you’d expect, the cost of health insurance gets higher as we age. This increase can be worth keeping in mind when planning for retirement. A helpful option could be Complete Disablement Cover as part of a Cigna Assurance Extra Life Insurance.  

Our health can be a little unpredictable, especially in old age, so considering the potential health-related hidden costs of getting older is good thing to keep top-of-mind when planning for retirement.

3.    The cost of your lifestyle

If you’re skydiving and rock climbing now, you may not still be doing this when you’re retired. In saying that, having an enjoyable lifestyle can be important in your twilight years. You might think you’d just knit all day on an armchair, but in reality, you may want to keep busy doing activities that cost more money. Although they say that the best things in life are free, an enjoyable lifestyle is often a hidden retirement cost that people forget to consider. As the cost of living increases and we go through economic ebbs and flows, lifestyle choices and creature comforts can become significant expenses over time. Here are examples of hidden costs that could affect your lifestyle in retirement:

  • Inflation

Inflation is unavoidable and something to consider when planning for retirement. It can affect nearly all aspects of life, from your home to transport. Although it’s hard to predict precisely how inflation will affect the future, you can get an idea with a helpful inflation calculator.

  • Entertainment expenses

A ticket to the cinema may have only cost a few bucks when you were a kid, but nowadays, a movie ticket can cost upwards of $20. Although this might be an expense you can manage easily now, the price of leisure activities can add up quickly when you’re on a pension and or living off of Kiwisaver payments.

  • Cost of living

A ticket to the cinema may not come under the umbrella of the cost of living, but expenses like food do. As the cost of living increases as you age, it can be worth considering whether your pension and Kiwisaver will cover it.

You should not be made to feel that you can’t have a comfortable lifestyle when you retire, but it can be essential to consider the cost of your lifestyle when planning your retirement budget. A great way to account for these hidden costs can be to use a retirement budget tool. Read our helpful guide on top tips for budgeting your finances for other handy advice.

 4.    The cost of losing a loved one

In old age, it’s common to enjoy quality time with your spouse. One of the great things about retirement can be having time to enjoy activities you both didn’t have time for while working full time. Quality time may be special to share, but you or your loved one will eventually pass away. The loss of someone you love is difficult enough, so the hidden costs of their sudden loss can make life even more difficult. Here are some costs to keep in mind if you were to go through such a loss:

  • Income from a loved one

Many retired couples rely on their Superannuation and Kiwisaver to cover expenses. Cutting this income in half could mean you need to reevaluate your finances.

  • Funeral expenses

Did your loved one that passed away have Life Insurance or Funeral Insurance? If they didn’t, the costs related to a funeral can add up quickly. Read our blog on covering the cost of having a funeral for more information.

  • Estate claims

Sometimes, elderly couples have shared debts like a mortgage. When one person passes away, the whole debt can sometimes fall on the remaining person.

It’s hard enough losing a loved one. So, keeping in mind the additional hidden costs that could occur from a sudden loss can help you be better prepared.

5.    The cost of living longer

At the start of this guide, we touched on how kiwis are living longer than ever. The extra years spent with just income from a pension and Kiwisaver means we may need more money saved for retirement than ever before. These extra years are often a hidden expense that people don’t consider. Partner this with the steady increase in the cost of living, and it can all start to feel a bit doom and gloom. But never fear! You'll be just fine by planning for what retirement could bring. Here are a few tools that can help you prepare for the future:

  • Retirement calculator

Similar to a budget calculator, a retirement calculator can help you consider and manage all of the potential costs associated with retirement. Read our guide on how to manage your money wisely in retirement for more tips.

  • Get a health assessment

A health assessment can be good for picking up any potential signs of illness. The evaluation may make suggestions or preventative measures that you can make now.

  • Talk to an Independent Financial Adviser

One of the best tools available for planning your financial future can be talking to an Independent Financial Advisor.

Being resourceful with what tools and advice are available can help you save enough money to live comfortably for your extra years of retirement. There are also other helpful financial advice resources to help get you started.

Ready to plan for your retirement?

A retirement budget doesn’t need to be scary. Setting yourself up and considering possible hidden costs while you’re young can mean you get the most out of your twilight years. The Pension and Kiwisaver are valuable sources of income when you’re older, but sometimes it can be helpful to have a bit extra saved up to account for hidden costs.

Cigna has helpful Life Insurance options to help make sure you and your loved ones are looked after should something happen to you. You can choose from tailored insurance solutions, including Cigna LifeOne Life Insurance or Cigna Assurance Extra Insurance.

It’s often good to talk with an Insurance Advisor or Independent Financial Adviser to work out a financial plan for the future and discover the best Life Insurance option for you. Remember, like a fine wine, we all get better with age!