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6 Surprising Costs To Prepare For When Planning Retirement

7-minute readSeptember 21, 2020

If you’re nearing retirement, chances are you’ve been saving for this event the majority of your life. And now that’s it’s almost here, you may be wondering if you’re financially prepared. Saving for retirement is one part of the puzzle; planning how you’re going to spend your money over a span of many, many years is the other. The planning part is where some people may stumble, especially if they don’t look far into the future.

“Plan for decades, not years,” says Jeff Rose, a certified financial planner and founder of Good Financial Cents. “Many of those looking to retire plan on only the first few years. If you plan on retiring at 65, remember that many people live to be 85 or 90. That’s 25 years! Plan and save accordingly.”

How do you plan and save for retirement the right way? It starts with knowing how much retirement costs, so you can have an idea of how much you’ll be spending.

How Much Does Retirement Cost?

According to USA Today, “the average American will spend about $987,000 from retirement age [around 65] on.” Of course, the exact amount you’ll spend depends on several factors, including what state you live in and what kind of retirement you want to have. If you’re planning on living a more active retirement or want to retire in a state with a higher cost of living, like Hawaii, expect to spend more.

No matter where you choose to retire or how you choose to live your retirement, there are a few expenses every retiree seems to face, whether they expect them or not.

What To Expect When It Comes To Retirement Expenses

Don’t let these common, but often surprising, retirement expenses disrupt the retirement you want to live.

Medical Expenses

As bodies age, they may require more maintenance as the immune system weakens, muscle tissue atrophies and bones become more brittle. While we don’t like to think of our health declining, that’s what happens in nature. And while you may think you’re invincible, it’s better to be prepared just in case it turns out you’re not. As you age, you may have more medical issues and thus higher medical expenses in retirement. And if you think you’ll be covered thanks to Medicare, think again.

You’ll need to pay for your own health care coverage if you retire before you are 65, the eligible age for Medicare (unless you qualify for disability). Even if you are on Medicare, remember that it is neither free, nor all-encompassing. Along with paying deductibles, copays and premiums, you may also need to pay for some of your healthcare out of pocket or with supplemental insurance. Medicare typically covers about 80% of your medical expenses, so you’ll need to plan for that other 20%.

How to plan ahead: You can plan for these costs and even create an emergency fund for medical expenses, but prevention is even better. Healthier lifestyle choices now can save you in the future, so stay physically active, eat your fruits and veggies and make regular visits to your doctor and dentist.

Long-Term Care

Another issue with Medicare is that it doesn’t cover long-term care. Long-term care includes assistance with basic living needs and daily living activities. It’s typically needed for someone with a serious medical condition or disability, who is unable to care for themselves. The cost of this type of care may surprise you. For example, assisted living can cost an average of $4,051 per month, according to Genworth.

How to plan ahead: Along with living a healthier lifestyle now, you can also plan for the potential future by purchasing long-term care insurance, which helps cover the costs of things like assisted living, long-term rehabilitation centers, at-home care and some nursing homes.

Parent And Child Care

In addition to preparing to pay for your retirement expenses, you may have to plan to pay for the expenses of others as well. People are living longer than ever and may even be outliving their savings. If your parents surpassed the age they expected to live when they planned their own retirement, they could fall short of funds. And if they are much older, they may not be able to go back to work to earn more.

Today’s retirees face another problem, too – boomerang kids. Many millennials are moving back in with their parents as they navigate adulthood, save more money or attempt to reach other financial or life goals. This can put a strain on a retiring parent’s finances if they take on some of the additional costs of having an extra person or two living under their roof.

How to plan ahead: Have a talk with your parents about their finances and whether they have plans for long-term care, if it’s ever needed. Depending on their plans, you may need to adjust yours.  

Change In Lifestyle

With more time to do the things they love and a long bucket list to fulfill, many retirees find themselves spending more money in retirement than they had planned due to the costs of taking on new hobbies and traveling more. The beginning of retirement can be exciting, and the first few years are often the time budgets and spending can get a little out of control if you’re not careful. It’s during this time you need to consider your future needs along with your present goals.

“You want to keep enough in the bank for decades, so don’t let lifestyle inflation become a problem,” warns Rose. “Make calculated choices regarding unnecessary expenditures.”

How to plan ahead: Make a bucket list of all the things you want to do, visit and experience once you’re retired, then research how much it would cost to do each. Want to travel to Italy? Plan a trip and figure out the costs, whether you actually end up going or not. Want to learn how to play the guitar? Research the cost of local lessons and the price of a guitar if you don’t already have one. Putting a cost to each item on your list will help you implement your lifestyle changes into your budget or help you know what amount you need to save. It could also help you determine which new hobbies and experiences to go after first. 

Rising Costs Of Living

Even if you don’t change your lifestyle, the cost of your lifestyle may change, thanks to inflation. Think about the price of groceries, clothing or gas when you were younger compared to those prices now. Chances are they’re much higher. Now imagine what they’ll be the year you retire and the years following. Luckily, you won’t have to do too much guesswork. Barring any dramatic changes in the economy or major world events, there are people that have forecasted long-term U.S. inflation rates.

How to plan ahead: Do some research on inflation rates. Review past numbers to see how they’ve fluctuated and what may have caused the change. You can also review what the projected inflation rates are for future years. Right now, predictions for the next 20+ years remain between 2 – 2.5%.

You can also prepare for inflation by decreasing other expenses before you retire to give you more money for rising costs of living. To do this, work on paying off debt, avoid taking on more debt, and see where you can cut costs on utilities, insurance and subscriptions.


Just because you’re retired doesn’t mean you don’t still have to pay taxes. Remember, if you have a traditional IRA or 401(k), you’ll be taxed with each withdrawal. These accounts are tax-deferred, which means you won’t be taxed on the money you put into it until you take it out. And if you take it out earlier than age 59½, you’ll get taxed on the distribution andpay a penalty.

And don’t forget about property taxes. Even if you own your home free and clear, you’ll still have to pay annual property taxes, which typically increase year over year. If you’re buying a home, remember that your property taxes will be reassessed and typically much higher than you may be used to paying if your home now.

How to plan ahead: Diversifying your retirement assets will allow you to choose which accounts to pull from. So, if you have a tax-free account, like a Roth IRA, you could pull from that while you continue to allow your tax-deferred account, like a traditional 401(k), to grow.

As for property taxes, if you’ve been living in your home for some time, you are no stranger to property taxes. By now, you should be able to estimate future taxes on your property based on what you’ve paid in the past and how much taxes rise on average year over year. If you are purchasing a new home in retirement, you can calculate your property taxes by multiplying the assessed value of your home by your local government’s tax rate.

Expenses That May Decrease In Retirement

“Costs that dissipate might include gas or toll money you might’ve spent on commuting to work,” says Rose. “Ideally, you probably paid off your house and vehicle before you retired. [So expenses like] mortgage or car payments will go down for retirees.”

While you may see a drop in some living expenses, Rose predicts you may not see a big drop in your overall spending.

“Don’t expect your expenses to drop drastically during retirement,” warns Rose. “Expenses you shed are often replaced by other ones you choose to take on.”

Creating A Retirement Budget

“It’s OK to enjoy your retirement but remember to live within your means and have a structured budget,” says Rose. “Being retired doesn’t mean you shouldn’t keep track of your spending.”

To create a personal budget for retirement before knowing how your spending will really be, write down your expenses from the past year. First, see where you can eliminate or decrease some spending (most likely commuting costs, business attire, dry cleaning, etc.). Then, add any expenses you predict will increase in retirement (healthcare, entertainment, travel, etc.). When figuring out how much you should be spending in retirement overall, about 80% of your salary is a good place to start. Again, this will depend on where and how you retire.

The best way to plan for your retirement is to speak to your financial advisor, who can help you create a plan and budget that best fits your individual needs and goals. If you’re looking for more resources, RocketHQSM has information on personal finances and tips for paying off debt and saving money.

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