Planning for retirement is often seen as a numbers game – calculating how much you’ll need to maintain your lifestyle, cover essentials, and enjoy some well-deserved leisure.
But what about the unexpected?
The truth is, even the most detailed retirement plans can be derailed by hidden expenses you didn’t see coming.
From skyrocketing healthcare costs to helping out a child in need or tackling home renovations, these overlooked expenses can chip away at your savings faster than you think.
Retirement should be a time of relaxation and fulfillment, not financial stress. That’s why preparing for the unexpected is just as important as building a nest egg.
In this article, we’ll explore 10 potential retirement expenses that often fly under the radar – and more importantly, how you can plan for them.
By taking proactive steps now, you can safeguard your retirement dreams and enjoy your golden years with confidence.
10 Possible Retirement Expenses That May Fly Under the Radar
1. Healthcare costs
When planning for health, you can expect Medicare to cover some of your costs.
An average American couple needs approximately $413,000 to cover healthcare costs after retirement. (Note: This number was $285,000 in 2019)
There are also overlooked healthcare costs such as vision and dental exams which are not often factored into the healthcare budget.
Many people fail to save enough for Medicare because they’re unaware of the premiums and cost-sharing associated with it. When planning for Medicare, keep in mind that some parts are free, while others are not.
- Medicare Part A covers inpatient hospital stays and nursing care.
- Medicare Part B covers doctor’s visits, tests, flu shots, physical therapy, and chemotherapy.
- Medicare Part C covers services that Parts A and B do not cover, such as dental care, eye exams, and hearing aids.
- Prescription drug coverage, known as Medicare Part D, also has a monthly premium, depending on which plan you choose.
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2. New Vehicles
If you intend to keep driving until you are unfit to do so, then the car you’re currently using will probably not get you through retirement.
Your vehicle might get too old and unreliable and need to be replaced. Perhaps you might need a more comfortable car and one that reflects your lifestyle better. There is also the probability of having the car damaged or stolen.
So when making plans, you have to consider the possibility of wanting a new vehicle.
When you’re retired, you may still be able to qualify for a car loan based on your retirement income. Budget for outright or down payment even though you may never need one.
3. Caregiving
Whether your family lives far away, you are estranged, or perhaps you simply don’t have family in your life, you may find yourself without a relative to take care of you.
You could also find yourself responsible for parents, siblings or children because they are unable to meet all of their physical or financial needs.
If you can afford it, you might want to plan for a retirement that not only covers your expenditures but also allows you to help someone you care about.
By the way, you may be entitled to cash compensation if your loved one qualifies and you are caring for them.
4. Income Taxes
Contributions made to pre-tax retirement accounts during your active years are subject to income tax when you withdraw from those accounts during retirement.
You should expect to pay the same rate or percentage as your ordinary income for your tax bracket the year you withdraw from your traditional 401(k) or IRA.
This is why it’s essential to consider having a Roth IRA or a Roth 401(k), as both allow you to pay taxes up front rather than upon withdrawal.
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5. Home Renovations
Costs associated with home improvement are not uncommon during retirement.
Retirees who prefer to stay at home rather than move to another location or retirement community may find that their home needs modifications to be safe and comfortable.
With the prices of home building materials still high, this may be too much of a burden to bear when you are not working.
There are certain options retirees can use to raise money to cover home improvement expenses. You can decide to rent out space in your home.
If you have the setup, consider turning your basement into a standalone apartment, which could bring in hundreds of dollars per month in steady income.
6. Inflation
Inflation is the silent thief which robs us of our financial wealth.
Worse is, this event is beyond our control and dependent on economic forces. It sneaks up on us when we least expect it, though it may have been giving warning signs which we choose to ignore. When planning for retirement, try as much as possible to factor in inflation costs.
Perhaps you can use a 10-year average or 20-year average in inflation as estimates when doing your calculation. One good thing about considering inflation is that it pushes you to save more.
Also, since inflation erodes the value of money, you should look for alternative ways for protecting your wealth. You may decide to invest in stocks, buy a landed property or open a business to hedge against future rising costs.
7. Divorce
One unusual retirement complication that has popped up among older generations (Boomers and Gen X) is an increase in divorces.
Coined, ‘gray divorce’, this age group has seen a big increase, with the divorce rate for adults aged 50+ more than doubling between 1990 and 2010. A 2022 study found that 36% of all divorces in the US are from couples 50+.
No matter the age it occurs, going through a divorce is stressful. But when it comes on the heels of retirement, it can leave you feeling less financially secure or in an expensive legal battle over your savings and investments.
You have to be patient with yourself and with your spouse or you may find yourself part of the gray divorce phenomenon.
8. Caring for elderly parents
Caring for elderly parents has caught a few clients off guard.
With improved lifestyles and nutrition, a lot of people are now living longer. This means that perhaps more than ever, children will be faced with the responsibility of taking care of their parents.
There is a knowledge gap between what the parents have and what the kids think their parents have. So, oftentimes, they have to dig into their pockets to make up the difference.
With elder care costs blowing through the roof, financial planning has become ever more important to the economic well-being of retirees responsible for the care of their elderly parents.
It’s critical to have these conversations with your parents so you’re not faced with any major surprises that could put a dent in your retirement plans.
9. A child in need
The trend of boomerang kids is rising.
A lot of kids are moving back to their parent’s house after graduation. Rising student debt is making millennials and Gen Zs postpone the achievement of life milestones. It’s natural to want to step in when your child needs financial help.
But the older you are, the more difficult it can be to recover from such an unanticipated expenditure. According to a study, half of the parents financially helping an adult child say it’s putting their retirement savings at risk.
Though it is the dream of every parent to see their child grow and start a life of their own, you should be cognizant of the fact that life could throw a curveball. Proper planning is needed to counter the effects of this.
You can start extra savings account for this purpose. If you do not get to spend this money in helping your kid financially, you can create a will and pass it on to your kids or grandchild(ren).
10. Grandchildren
The addition of a grandchild might throw a retirement budget completely off.
Your financial priorities may shift as a result of your grandchildren. Some grandparents like lavishing gifts on their grandkids, regular visits with them, assisting with child care, or establishing a trust to help provide for their future needs.
Each of these circumstances has the potential to drastically alter your retirement budget.
Retirement Expenses: The Bottom Line
It’s impossible to anticipate every eventuality that could crop up in your retirement.
However, smart planning can soften the effects of added responsibilities and expenses you may face during retirement.
If you’re unsure how to go about this, you can work with a financial planner to help identify potential problem areas and prepare you for surprises when they come up.
Editor’s note: This article was originally published Nov 17, 2023 and has been updated to improve reader experience
