Pin Me

How the Hidden Costs of Aging Are Making It Harder to Live in Retirement

written by: •edited by: Kait Krolik•updated: 8/27/2015

When one evaluates their 401(k) or retirement fund, they typically assume that they will be fine. However, growing old comes with some health risks that may effect your savings. With these tips, you can ensure you stay afloat throughout your retirement years.

  • slide 1 of 5
  • slide 2 of 5

    No one ever said that getting older was easy. And as we age, we find ourselves much less welcoming toward surprises — especially when they have to do with our finances.

    More and more seniors are discovering the surprise costs of aging and learning that they can be burdensome to the point of disaster. No one — not even those who have socked away a small fortune — is immune to them.

    Consider, for example, the story of Bernie and Violet Karpinkski. This Colorado couple saved meticulously their entire lives, only to have their nest egg wiped out when Violet was diagnosed with Alzheimer’s shortly after retirement. Social Security, a pension, and Medicare didn’t come close to covering the costs of her medical care, forcing the couple to dip into their life savings.

    Gone were their dreams of traveling the world as retirees. Welcome to the world of living paycheck-to-paycheck, a lifestyle typically reserved for those who haven’t yet paid their dues in the working world.

    Believe it or not, Bernie and Violet were lucky. They made all the right decisions and were thrifty with their earnings. Many seniors don’t have a nest egg to dip into, and though Social Security was never intended to function as a primary source of income, one out of five married retirees relies on it to live.

    Those who survive on Social Security expect a yearly cost-of-living adjustment (COLA) to help account for the increasing expenses older Americans face. Sometimes, however, the COLA doesn’t do enough justice to the rising costs of being an American senior.

  • slide 3 of 5

    Why the COLA Doesn't Cut It

    There have been times when Medicaid price increases outpaced the COLA, which resulted in insufficient adjustments.

    Healthcare is just one piece of the puzzle, though. Recently, the federally insured reverse mortgage program added a financial assessment to its qualification process. An applicant’s credit and income must now be evaluated to make sure he has the willingness and capacity to maintain his homeowner’s insurance, pay his real estate taxes, and perform general home upkeep. Even without monthly mortgage payments, retirees’ real estate taxes continue to rise. They depend on a sizable COLA to help cover these — and other — swelling expenses.

    And that’s still just the tip of the iceberg. Social Security hasn’t been adjusted to account for increased life expectancy or rising utility costs.

    The primary issue with the COLA is that it’s tied to the active workforce, not the elderly. It’s currently determined by a formula using the Consumer Price Index-Urban Wage Earners and Clerical Workers as a baseline. The hope is that the COLA will someday be linked to the Consumer Price Index for the Elderly, which generally rises about 0.2 percent faster. It might not seem like much, but for those living on a fixed income, every little bit counts.

    Until that happens, let’s identify some ways to help you stay afloat.

  • slide 4 of 5

    Overcoming the Hidden Costs of Aging

    If you’re concerned that Social Security and the COLA are failing to cover your cost of living, here are two moves you should make:

    1. Evaluate your situation and trim the fat

    Although your situation might be different, let’s take a look at how the average American senior is forced to budget his or her money.

    The average yearly income for seniors was $31,742 in 2012 — translating to approximately $2,500 per month. After subtracting 40 percent of that for housing expenses, they’re left with just $1,500 for transportation, food, and other necessities. That doesn’t leave a whole lot of breathing room for any unexpected health issues or other surprise expenses.

    If you find yourself with a low amount to work with every month, it’s time to find ways to cut back on your spending and eliminate your debt. You should always be prepared for the worst — do everything you can to prevent one health issue from derailing your entire retirement.

    2. Seek out advocacy resources

    There are a great number of resources out there seeking to help retirees budget their funds. Start with organizations like the National Council on Aging, the National Aging In Place Council, and AARP. These three in particular are dedicated to helping seniors achieve a higher quality of life.

    AARP is an especially powerful lobbying force. It does a lot of work in Washington, D.C., speaking on behalf of seniors all over the country. You can be sure that it will play a major role in any Social Security changes we see down the road.

    You’ve seen a lot of change in your lifetime, and your resilience has carried you this far.

    With any luck, the COLA will soon become something that American seniors can consistently rely upon. But for now, you have to make the best of a difficult situation. With the help of resources like AARP, it’s not terribly difficult to ease the financial burdens of aging and prevent surprise expenses from ruining your retirement plans.

  • slide 5 of 5

    About the Author: Annie Doisy is a reverse mortgage expert who helps seniors enhance their lives by taking advantage of the equity in their homes. Annie creates content for ReverseMortgages.com’s blog to inform homeowners on how to access the equity in their homes. She believes that staying well versed in all types of mortgages is necessary, regardless of your or your company’s specialty.