What Can Go Wrong?

     We enter retirement with a financial plan that we've figured out will work for us. We have income from Social Security and our IRAs -- and a pension if we're lucky. We might have other investments, or plan to use some of the equity we have built up in our homes. Some of us will receive an inheritance; some of us will supplement our retirement income with part-time work.

     If we're smart we've devoted a good deal of attention to forecasting how much we'll spend in retirement as well, counting up our basic living expenses, then adding in travel and entertainment, car repairs and home maintenance.

     Whatever it is, if we've planned things out, we should be okay from a financial standpoint. Right?

     Not so fast. The question I'm worried about today is: What can go wrong?  What can upset your retirement financial plan?

     On the income side of the equation, we've already experienced one pretty drastic shortfall. Interest rates have collapsed. The savings you keep in a bank CD, or a garden-variety bond fund, used to pay out 4 or 5 or 6% in income. Now, thanks to Ben Bernanke, you're lucky to get 1 or 2%. I recall, when I first left work in the early 2000s, I moved my 401k plan over to an IRA at Vanguard. I was being credited with $700 to $800 a month in interest payments. Now I'm getting a measly $20 a month.

     You can also suffer from the vagueries of stock market, the real estate market, and the job market. It's fine to plan for part-time work. But what if you can't find a suitable job? And it's tough to cash out some of the equity in your home when the value of your house has gone down by $50k or $100k. I, myself, own a rental property -- something like 10% of retirees rely on rental property for a part of their retirement income. But that can pose its own problems (which I will tell you about in a future post).

     We worry about Social Security and our pensions, but in fact, those are probably our most reliable sources of income over time.

     Meanwhile there's the other side of the equation. Expenses. What are the unexpected expenses you might face in retirement? Last year I went to the dentist with what I thought was a routine cavity. I found out I needed to have the tooth pulled. I could have just left a gap in my teeth -- a lot of people do that -- but my dentist recommended an implant. I decided to go ahead. I have some dental insurance, but it didn't cover the implant. Goodbye to $5,000.

     So a big dental bill is one unexpected expense. You cannot put off spending money when you have a toothache.

     I've been lucky on the medical front. Yes, I've had a few problems. But so far they've been covered by my medical insurance. Last year I had to have two operations on my hand -- one because I cut my finger, the other for carpal tunnel syndrome. Neither one was a major operation, and my insurance company covered all but $200. But this year my deductible has gone up to $1,000, per incident. Would have cost me $2,000. So this year I'm trying to be real careful.

     In my state, the governor passed a law limiting real-estate tax increases to 2% a year. But, somehow, when we got our tax bill last month, the increase was 4%. Taxes are a major expense for us; but they are not unexpected. The difference between 2% and 4% is nowhere near the cost of a tooth implant.

     My insurance company tried to raise my car-insurance premium. But I took that auto-safety course, so this year my premiums will actually cost me a bit less than last year.

     But I'd like to know, from people more financially savvy than I am, or more experienced:  What are the financial pitfalls awaiting us in retirement? I don't have any grandchildren yet. Is that going to cost me? I'm just trying to get a handle on things.